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Monday, July 10, 2006

Most Widely Traded 48 Hour Clock: Sirius, Brother Can Your Spare A Dime

24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

Stocks: (SIRI)(XMSR)

One of the theories floated about the relative growth of the Sirius and XM subsriber bases is that XM, with the larger base, faces more cancellations and has higher market penetration. That being the case, adding net new subscribers is more difficult. The corollary of this thinking is that as Sirius grows, it will hit the same wall.

If this is the case, Sirius has a potential cash problem that it may have to solve soon if its subscriber growth slows. In Q1 06, the company had cash of $630 million. Marketable securities were $84 million. Accounts payable and accrued expenses were $294 million, much greater than receiveables. The company's operating loss was $446 million and net cash used in operating activities was $159 million. Which means that Sirius has to keep growing at a rapid rate to prevent circumstances where it would have to raise money and dilute exisiting shareholders.

By contrast, XM had an operating loss of $101 million for the first quarter. The company had cash of $520 million. Accounts payable and accrued expenses where about $170 million. Net cash used in operating activities was $161 million.

Neither company is in especially good shape financially. XM may have a slight advantage because its revenue base is larger. If Sirius does see a slowdown in net new subscribers as it grows, its ability to live on current funds may disappear...

...Which may be another reason the stock is off almost 50% this year.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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