Sirius Satellite Radio (SIRI)

Notes:
- Negative surprises last two quarters resulted in price slumps after the results following a surge before
- 400K as of May 11 2004. Was 260K subscribers as of Dec 31 2003. Much, much less than XMSR
- Over 110 Channels, including a deal with NFL
- Distribution deals with Daimler Chrysler, Ford, BMW, Nissan, VW, and Hertz
- Daimler Chrysler and Ford have special stock purchase deals after X cars with radios are made (see 10-K). Warrants to purchase 4M shares each at $3.00 a share
- Similar stock deal to Penske (trucking co. and auto dealership) to exclusively order Sirius radios in purchased vehicles. Warrant to purchase 38M shares at $2.39 a share!
- They have 3 satellites in orbit and 1 spare, each has a useful life of 15 years
- Studio based in NY
- XMSR and Sirius have agreed to use the same radio standards (all radios can be used for both)
- Current deficit of $1.2B since start of operations
- They estimate they need 2M subscribers to achieve cashflow breakeven. Looks like they need 6-10M subscribers to turn a profit
- Class action lawsuit filed against them about inflated expectations (their stock tanked in 2001)

SWOT analysis:
- Strengths:
+ Looks like a good set of deals with automakers
+ Income statement seems to show a leaner company than XMSR (with 1/6 the subscribers, they are losing about the same amount of money)

- Weaknesses:
+ Really falling behind XMSR in terms of subscribers
+ Subscriber Acquisition cost (SAC) is $293 (vs. $75 for XMSR)

- Opportunities:
+ They could be snapped up by a media company (e.g. Time Warner)
+ Could go the other way too (e.g. recent deal with Dish networks)
+ No reason why they couldn't catch up and surpass XMSR, they are doing very similar things

- Threats:
+ May just get steamrolled by XMSR
+ Technology may pass them by (e.g. Internet radio)

Questions:
- How long will it take for 10M Americans to buy Satellite radio (if ever)?
- Does SIRI have enough cash to last that long?
- Why has SIRI fallen so far behind XMSR in terms of subscribers- Can they
catch up?

Recommendation: Stay away.