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

To: pcstel who wrote (2261)	2/18/2006 8:11:34 PM
From: i-node	Read Replies (2) \| Respond to of 3386

Right -- this is what happens during the startup period. But when the CPGA gets to a sub-$90 level (where XM's has been and where it is likely to return in Q1), you have a $15 activation fee, you're in the sub for $75. With an ARPU of $10 or $11 you recover the money quickly. Nobody has suggested these companies won't suffer huge losses during the first several years, and they, of course, have. But your assumption has always been that CPGA was too high, and it really isn't at this point (with the understanding that Q4 was an anomaly, and as stated by XM's management, CPGA has already returned to its earlier levels). Obviously, when you start a business of any kind that is going to service tens of millions of customers, you're going to suffer startup losses, and they're not going to be small. To try to base your argument on what CPGA was a couple years ago is a bit disingenuous. For that matter, what ARPU is now (since we know that ARPU is heading up, and will keep doing so for several years, given the price increase and the other services--data services, etc.) is not representative, either. If one looks closely, XM's variable unit costs have dropped nicely over the last two years, as well, bringing the contribution margin within reach of management's original estimates. Your entire thesis has been "CPGA too high, ARPU too low, CHURN too high". But it is quite simple, as the other fellow has pointed out, to model these things and see that it simply isnt' the case given where we are in XM's growth at this point. Sirius has a different set of problems because they have allowed both their variable and fixed costs to escalate. But XM has, to date, controlled costs pretty well, and your point doesn't hold when you do the arithmetic.