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

To: pcstel who wrote (515)	3/28/2003 8:42:25 PM
From: i-node	Read Replies (1) \| Respond to of 3386

This is why I keep saying that CPGA is too High. ARPU is too small. I wouldn't disagree with your statement IF today's operations were representative of future expectations. Clearly, this is not the case; which returns me to my earlier point, that we are still effectively a "development stage enterprise". This is supported by the fact that the company is surging forward toward break even, but merely isn't there yet. One has to be very careful to analyze costs properly -- particularly when fixed cost are significant component of the total cost structure (as in this case). This company's cost structure is substantially fixed -- with programming being the principal variable cost of operations, and that likely to be offset by a variable revenue stream, advertising. As the subscription levels in this organization scale, you'll see two major changes -- ad revenue will increase, and programming costs will increase. The utility bills will stay the same. The depreciation will stay the same. The facilities and in-house production costs will stay the same. And frankly, the larger portion of SAC will stay the same (i.e., advertising). Over a period of 2-3 years, the variable SAC will decline, go away, then turn into a small revenue stream. The thing people can too easily overlook is the fact that the company is "losing money" at this point. And while that is true, the expenses (other than the variable items mentioned above) are not that different from what they were with the first subscription, and aren't that different from what they'll be with 10M subs. This is the classic definition of a "cash cow" -- low variable costs per unit, manageable fixed costs. You're have your panties in a wad over something that is no different from the costs a different enterprise might encounter in making its brand known. The problem is more difficult here, because the entire category of product is unknown. But it is clear the product is going to be in tremendous demand; even better, it looks as though the sole competitor has incompetent management. It is interesting that, in the face your concerns over subscriber acquisition costs, the company announced just yesterday that they will be cutting the average monthly subscription (by introducing a "family" plan). If they had these concerns over SAC it is clear they need not have done so. In particular, they pointed out that it has always been planned, but only when average SAC hit the level we're at now. Bottom line -- if we're still discussing this subject 5-6 years from now, it would be a problem. But now, at this point in the company's life, SAC isn't important. It is a land grab, and XMSR is winning it hands down. SAC has scaled well thus far and will continue to do so.