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Tuesday, October 03, 2006

Sirius Gets Cut Down In Size (SIRI)(XMSR)(AAPL)(MSFT)

Sirius shares lost 18% of their value in the quarter ending September 29.

Who would have thought it? Sirius has made announcements revising its year-end subscriber count up, while rival XM has said that it will not make its original forecasts for 2006 growth. The Howard Stern bandwagon still seems to be working well for Sirius, and XM has not equivalent star.

Sirius is still being hurt by huge losses and a mountain of debt. For the first half of the year, the satellite radio company had $277 million in revenue and operting losses of $953 million. The company also has $1.1 billion in debt. Based on Morningstar's discounted cashflow model, the fair market value of Sirius stock is only $1.50. That's a big difference from where it trades now at $3.97, which is already 50% below the stock's 52-week high.

Two other concerns dog Sirius. One is that with its current debt load, if it misses it revenue and subsdriber targets, it may have to go back to the market for more money. Dilution. The other is that portable music devices have evolved since Sirius got into the business in the 1990s when its sotck traded above $40. The Apple iPod, Microsoft Zune, and a number of other portable music players have been adapted to play in the car. Old line radio companies like Clear Channel are now sending out better digital signals and streaming their content to PCs. At some point, that streaming system may work for other devices.

Sirius has competition, and its is more than just XM.

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

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