Discussion in 'Stocks' started by areyoukidding?, Sep 19, 2005.

  1. This thing is getting massacred.
  2. Seriously?
  3. yes, SIRIUSLY.
  4. This article about always pushing back the date they expect to be profitable sounds a little too familiar.

    ( DJ ) 09/16 07:31AM =DJ IN THE MONEY:XM, Sirius Keep Pushing Back Break-Even View
    By Michael Rapoport
    A Dow Jones Newswires Column

    (This article was originally published Thursday)
    NEW YORK (Dow Jones)--Both major satellite-radio companies have grown by
    leaps and bounds, but a key goal they are aiming for seems ever out of reach.
    XM Satellite Radio Holdings Inc. (XMSR) has 4.4 million subscribers at last
    report, more than double a year ago. Sirius Satellite Radio Inc. (SIRI) has
    1.8 million, up close to fourfold over a year ago. Yet the companies seem no
    closer to their holy grail of generating cash instead of burning it.
    Once upon a time, XM and Sirius had both expected to have positive cash flow
    by around now - crucial for demonstrating their long-term viability. At
    different times, some as recently as early last year, each company said
    publicly that it expected to break even on a cash-flow basis before the fall
    of 2005, and with about the number of subscribers it has now, or even fewer.
    It hasn't happened: XM's operations burned through $85.3 million in the first
    half of this year; Sirius's burned $181.8 million.
    Instead, both companies keep moving the goalposts, pushing back the dates at
    which they expect their operations will start generating cash. It seems this
    elusive goal is always at least a year away; XM currently foresees break-even
    by the end of 2006, Sirius for 2007 and maybe in the fourth quarter of '06.
    In part, there's a logical reason for the delays: Both companies have been
    spending lots of money on big-ticket, high-profile programming to lure new
    subscribers and get a leg up on each other. But it's fair for investors to
    question how much longer it will actually take for the companies to start
    generating cash. And judging from the slump in both companies' stocks this
    year, it's possible some investors are getting a bit antsy.
    To be sure, both companies say they have enough money to last them until
    their operations start producing cash. Besides, neither has had much trouble
    tapping the markets for money: Since the start of 2003, XM has raised nearly
    $1.7 billion by selling stock and debt; Sirius has raised $1.8 billion.
    Both companies remain upbeat. Chance Patterson, an XM spokesman, said XM
    feels "more emboldened than ever" and has "made some smart investments in
    content while being able to control our costs."
    Sirius spokesman Jim Collins said Sirius's subscriber growth has been
    "explosive"; the previous break-even forecasts which Sirius had to push back
    are "old news," he said, and Sirius has been consistent in its forecasts since
    its current chief executive, Mel Karmazin, arrived at the company late last
    Maybe, but the record of both companies' public statements is what it is.
    Back in 2002, for instance, XM projected break-even by late 2004, with far
    fewer than four million subscribers. In February 2004, it pushed this
    break-even date back to the first half of 2005. By August 2004, XM had dropped
    the "first half" part and was saying, simply, 2005. In November, this goal
    became 2006, because of what it said were the cash-flow requirements of its
    deal to carry major league baseball games. This past July brought the current
    forecast of "operational" cash-flow break-even by the end of 2006. (XM
    actually had positive operating cash flow in the second quarter of 2005, but
    acknowledges that is an anomaly tied to a change in its pricing; it is
    expected to return to negative cash flow later this year.)
    Sirius said in fall 2002 that it foresaw break-even in early 2005. In
    January 2004, it called for break-even "late next year" - that is, 2005. As
    late as May 2004, the company was "confident" of break-even by the end of 2005
    with two million subscribers - a level it has likely surpassed by now.
    Then came the high-profile but costly signing of shock jock Howard Stern, in
    fall 2004. Sirius didn't push back its break-even projection when it announced
    the Stern deal, but several months later, this past March, it quietly revised
    its break-even projection to 2007. In August, the company added the provision
    that fourth-quarter 2006 break-even was possible. (Sirius's break-even
    standard is based on free cash flow, or operating cash flow minus capital
    expenses and restricted investments; on that basis, it actually burned even
    more than its $181.8 million operating cash burn in the first half. XM's
    standard appears based on operating cash flow.)
    Of course, circumstances change over time, and can affect such long-range
    projections. In its Securities and Exchange Commission filings, Sirius says it
    often executes changes in its plans and strategy, "some of which may be
    material and significantly change our cash requirements or cause us to achieve
    cash flow break-even at a later date."
    Specifically, as these accounts suggest, the delays in the break-even dates
    has more than a little to do with the programming arms race between XM and
    Sirius, and the resulting dramatic increases in spending. To take the two most
    prominent examples, the signing of Stern is costing Sirius $500 million over
    five years; XM's 11-year deal for major league baseball rights costs $650
    For the first six months of 2005, XM's programming and content costs nearly
    tripled compared with a year ago, and Sirius's more than doubled. Both
    companies have taken on major financial commitments to programming for years
    to come; for the years 2006-2009, XM averages $137 million a year in
    programming commitments, while Sirius's average is $107 million a year.
    Bruce Leichtman, president and principal analyst of Leichtman Research
    Group, a Durham, N.H., research and consulting firm specializing in broadband,
    media and entertainment, said that, while most of the major satellite-radio
    program deals have now been done, "if they're going to keep playing this
    content-escalation game, it's going to keep moving back" break-even dates.
    Even though the companies are flush with the cash they need to see them
    through to these revised dates, the repeated delays in their projections could
    bring investors some pause - and may have already. Despite the companies'
    phenomenal growth, XM stock is off about 5% this year and Sirius is off 4%,
    underperforming the broader market.
    And investor sentiment is especially important for companies whose stock
    prices have got so far ahead of events, as these two have. XM trades at about
    20 times its book value and 21 times its last 12 months' sales; Sirius is at
    13 times book value and 69 times sales. No other large-cap companies trade at
    ratios that lofty without posting a profit, which XM and Sirius have yet to
    do. Without profits or positive cash flow, the increases in the stocks is "all
    speculation," Leichtman said.
    Patterson, the XM spokesman, said the investment community has been "very
    positive" about XM's efforts. Sirius's Collins said the reaction of investors
    and analysts to Sirius's moves "has been positive judging from the stock price
    and the upgrades to the sector."
    Without the black ink XM and Sirius haven't yet delivered, though, it is
    only investor optimism and expectations that is keeping their stock prices up.
    So far, their growth has kept that optimism high. But if anything should
    happen to dent that goodwill and rosy outlook for either company, it's liable
    to be a long way down.
    -By Michael Rapoport, Dow Jones Newswires; 201-938-5976;

    (END) Dow Jones Newswires
    09-16-05 0731ET
    Copyright (c) 2005 Dow Jones & Company, Inc.