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Technology Stocks : Sirius Satellite Radio (SIRI) -- Ignore unavailable to you. Want to Upgrade?

To: i-node who wrote (704)	10/30/2003 5:47:32 AM
From: Thomas	Read Replies (2) \| Respond to of 8420

Hey David, Just listened to the call. Wow, Joe Clayton sounds like a boss-jock DJ-- slicker than slick. He was slick at dodging questions like -- are you now guiding to 200k adds in '03 compared to your previous guidance of 300k adds? He completely ducked that question, with some Christmas activation lag blah-blah. Clayton was not forthcoming on any details of OEM cost structures implications (well OK, to be fair obviously XM was listening to the call, so I guess that's not totally unreasonable). They mishandled the question of how many dealer programs they have now and expect to have at year end, as well as declining to provide any estimates at all of take rates (based on 2.8mm max possible units - time frame I did not get). Hertz "subscribers" is a misnomer. At the end of the day the Hertz program is a sales/marketing showcase deal, not really about real revenues- ~$40k Hertz revenue for the quarter. That low revenue number means either SIRI gets a very small cut of the revenue from rentals with that option activated, or means that the activation rate of the service is way, way low. If SIRI gets 40% of the revenue (let's just guess for the sake of argument), that would mean that the radio option is activated only one rental day per quarter -- now that would be underwhelming. I hope that the revenue share is a hell of a lot lower, but even if it is 10%, that would only work out to 4 rental days per quarter. Maybe they put these things in the wrong cars? Anyway, the revenue is not really that big a deal with Hertz, but if this is really about showcasing the product, let's give it away for free so people actually try the thing out. I thought that Frear did an OK job of reconciling the $522 SAC number to the pro forma $198 that they are using, of which apparently $35-40 is commission for the sales channel, leaving ~$160 of equipment subsidy, which allegedly includes the costs of stocking inventory for subscribers not acquired yet. Apparently on the last call, they explained the Agere deal had to be expensed on delivery rather than activation ($197 of SAC is reportedly related to the Agere contract). Then there was ~$120 in promotion/inventory build-- which I did not really understand very well. Joe Clayton was very defensive on the Q&A on several occasions, but particularly when it came to sub growth guidance and SAC. He kept saying "hey, we are new at this. This is our first time with a full suite of products in the field. We have no history to go on." Etc, etc. This is not what I would want to hear from the CEO of a company where I am an investor, particularly not if the guy sounds defensive as well. I think I am a reasonable guy and can understand that its tough to make specific predictions when you on the steep end (we hope!) of the growth curve. Frear did make a reasonable point about the debt, namely that ~$200mm (I think) is 3.5% converts with a strike price of $1.38 so the debt (for now) is really more like equity. Anyway, their balance sheet is pretty strong assuming that they don't blow it on SAC costs or get stuck with huge expensive piles of obsolete chips/equipment. . . I must say that there was no positive energy in the Q&A session at all. Not even the usual and polite "Hey, good quarter guys" from a single analyst. I see nothing but downgrades as a result of that performance. I still like the prospects for the industry. I like the commercial-free angle that SIRI is pushing, as well as the sports angle. I think satellite radio will make it. There are not too many industries, where you can own 100% of the industry with 2 stocks, so I will remain a SIRI investor. I have to say, though, that my confidence has not been boosted (putting it generously) by the performance of management on the call. Cheers, Thomas