It seems to me that XM is in the process of attempting to transistion away from the growth story, into the financial performance story.. The only problem is, both of these companies are still priced as a growth story..
Perhaps; but I think it likely that the real reason for this change is that net adds is an absurd metric to use as a standalone item.
Net adds is a meaningless figure unless you can also discuss the costs associated with acquiring the gross number, the churn that leads to the net adds figure and other factors surrounding it.
XM has, from the outset, maintained that obtaining subscribers isn't a huge problem for them -- but that doing it cost effectively is a great challenge. Sirius, OTOH, has literally been given a pass on CPGA, mostly because of shareholders who don't comprehend the importance of growing the business carefully.
This idiot Jim Cramer is a perfect example. Last week, he said this:
The two companies, XM (XMSR - commentary - Cramer's Take - Rating) and Sirius, had contempt for the shareholders and spent money like crazy. Their acquisition costs were out of control. Their willingness to pay anything for talent was cataclysmic.
This remark is interesting, in that it is less true of XM but IS ABSOLUTELY DESCRIPTIVE of Sirius -- yet, he is bashing XM and recommending Sirius.
Then, he says:
Not anymore. Acquisition costs are going down .... I can see this network having hundreds of millions of dollars in commercials and twice its number of subscribers next year at this time because it is loved.
What an ignorant remark. Just last week on Jim's show, Mel backed off of his previous projection of having a 100M in ad revenue next year. And the idea that SIRI is going to double its subscriber count in the next year is utterly ridiculous.
XM's SACs have BEEN down. It is SIRI's acquisition costs that have been out of control -- not XM's.
And finally, this:
Plus, XM has blinked! It's ratcheted back spending and is not going to get into a price war, a content war or a subscriber war with Sirius. It has seen the light and the need for a benign oligopoly.
WTF? He's recommending Sirius because XM isn't going to spend wildly?
The guy is just like 900,000 Siriot shareholders. Clueless.
The cost of adding these subscribers is important. The money flowing out of these businesses is real and has to come from somewhere.
It is bizarre that XM was hammered by the markets in January of this year for increased costs when XM's costs were a small fraction of what SIRI's are.
It totally makes sense that XM should put the brakes on this nonsense -- if our net adds arent' what people are expecting, they damned well OUGHT to withhold the data until the full story can be told. |
