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Technology Stocks : XM Satellite Radio Holdings Inc. (XMSR) -- Ignore unavailable to you. Want to Upgrade?

To: i-node who wrote (369)	11/22/2002 12:08:04 PM
From: pcstel	Read Replies (1) \| Respond to of 3386

Your analysis is terribly simplistic. It overlooks the important word "currently". Call it the cost of obtaining a new subscriber, whatever -- the reality is that it is totally anticipated startup cost. Well, Equipment Subsidies are not considered Start-Up Costs. They are considered Equipment Subsidies. Also known as watching all your cash going out the door, in hopes of recovering it 6 years down the line. At XMSR's cost of capital (we'll be nice and say 14%) a $185 dollar equipment subsidy not only cost you 185 dollars in cash out the door, but also $26 a year to service the interest expense on that subsidy. Almost 1/4 of your Service Revenue is being paid to service the debt on the equipment subsidy, let alone repayment of the principle of that subsidy, or funding Customer Care Costs, or OpEx. As the number of new subscribers increases, so does the Cash Burn into the Black Hole called Equipment Subsidies. As a cautionary note! They are not providing CHURN metrics! This is probably one of the most important metrics that you need! Sometimes it's better to keep things simple! Regards, PCSTEL