stamplaw
August 9th, 2006, 05:30 PM
Get Sirius
..
Profits in the market are made by acquiring shares of quality companies
with superior growth prospects at discounted prices. If that doesn't
define Sirius Satellite Radio (SIRI, news, msgs), I don't know what
does. Poor market sentiment is artificially deflating the price of
Sirius and that creates opportunity for you.
Don't miss out on owning what I view to be one of the better long-term
growth stories of this millennium. Regardless of what happens in the
economy, I feel quite confident in stating that the next generation
will view terrestrial radio as being similar to manual transmissions.
If so, the profit potential at Sirius will be quite large. In a market
that is currently quite negative, Sirius has been proving its model by
substantially increasing its subscriber base and thoroughly trouncing
the competition.
Don't let a sanguine market response discourage you. Satellite radio is
entrenching itself as a legitimate alternative to terrestrial radio and
the growth prospects are quite large. The fact that the market refuses
to acknowledge this fact creates opportunity to establish or add to
your position.
It makes little sense for the stock to be down given all the positive
developments. Oh sure, the company is losing money and is richly priced
on current fundamentals, but the focus needs to be on the long term
here.
I can appreciate a recent MSN commentator's negative views on Sirius,
but I think he misses the point greatly. I don't care about short-term
losses and neither should any investor care for that matter.
Sirius should outlast XM
The bottom line is Sirius is building out its model. Profits come later
and I fully accept losses in the short run. Gains made on XM Satellite
Radio Holdings (XMSR, news, msgs) more than compensate for the prices
paid for content and such.
My bet is that ultimately one player survives here and my money is on
Sirius. I'll spend money now to crush the competition, and that is
exactly what Sirius is doing at the moment. The benefits of doing so
will be numerous down the road.
There is no need for a merger here. If Sirius can prevent XM from
earning a profit by capturing a larger share of the market, XM will
struggle to survive. When it dies, Sirius will have a stranglehold on
distribution and will be able to freely raise prices.
It doesn't take much to think out of the box here and see fantastic
potential. Frankly, competitive success is simply an added bonus to my
own analysis. The numbers speak for themselves and ultimately,
long-term investors will be rewarded as a result.
Currently, Sirius is on pace for 6.3 million subscribers. Guidance is
on a similar path as it was in 2005, meaning we could still see further
improvements. I still hold to my estimate of 7 million subscribers by
the end of the year, driven by holiday sales of what could be this
year's must-have gift.
Meeting its goals would mean back-to-back growth in excess of 100%.
Toning that down a bit still derives very impressive results. A 75%
increase in 2007 gets us to over 12 million subs. Add 50% in 2008 and
2009 and Sirius has over 27 million subscribers.
Assume they charge $15 per month for the service and revenues on that
number of subscribers is close to $5 billion. Add in a few billion in
advertising and ancillary revenue from streaming video and online
partnerships and we get to $8 billion in revenue.
That $8 billion should result in a 25% profit margin or better. That's
$2 billion of earnings and more than $1 per share. Put a 20 multiple on
that number and we get a valuation of $20.
With Sirius trading at less than $4, the potential return on investment
here is huge. There is risk with everything, but if the above scenario
plays out, we will be more than rewarded for taking the risk.
Successful investing requires patient speculation. I'm willing to wait
and see how things play out with Sirius. If I'm right, we will hit a
homerun.
..
Profits in the market are made by acquiring shares of quality companies
with superior growth prospects at discounted prices. If that doesn't
define Sirius Satellite Radio (SIRI, news, msgs), I don't know what
does. Poor market sentiment is artificially deflating the price of
Sirius and that creates opportunity for you.
Don't miss out on owning what I view to be one of the better long-term
growth stories of this millennium. Regardless of what happens in the
economy, I feel quite confident in stating that the next generation
will view terrestrial radio as being similar to manual transmissions.
If so, the profit potential at Sirius will be quite large. In a market
that is currently quite negative, Sirius has been proving its model by
substantially increasing its subscriber base and thoroughly trouncing
the competition.
Don't let a sanguine market response discourage you. Satellite radio is
entrenching itself as a legitimate alternative to terrestrial radio and
the growth prospects are quite large. The fact that the market refuses
to acknowledge this fact creates opportunity to establish or add to
your position.
It makes little sense for the stock to be down given all the positive
developments. Oh sure, the company is losing money and is richly priced
on current fundamentals, but the focus needs to be on the long term
here.
I can appreciate a recent MSN commentator's negative views on Sirius,
but I think he misses the point greatly. I don't care about short-term
losses and neither should any investor care for that matter.
Sirius should outlast XM
The bottom line is Sirius is building out its model. Profits come later
and I fully accept losses in the short run. Gains made on XM Satellite
Radio Holdings (XMSR, news, msgs) more than compensate for the prices
paid for content and such.
My bet is that ultimately one player survives here and my money is on
Sirius. I'll spend money now to crush the competition, and that is
exactly what Sirius is doing at the moment. The benefits of doing so
will be numerous down the road.
There is no need for a merger here. If Sirius can prevent XM from
earning a profit by capturing a larger share of the market, XM will
struggle to survive. When it dies, Sirius will have a stranglehold on
distribution and will be able to freely raise prices.
It doesn't take much to think out of the box here and see fantastic
potential. Frankly, competitive success is simply an added bonus to my
own analysis. The numbers speak for themselves and ultimately,
long-term investors will be rewarded as a result.
Currently, Sirius is on pace for 6.3 million subscribers. Guidance is
on a similar path as it was in 2005, meaning we could still see further
improvements. I still hold to my estimate of 7 million subscribers by
the end of the year, driven by holiday sales of what could be this
year's must-have gift.
Meeting its goals would mean back-to-back growth in excess of 100%.
Toning that down a bit still derives very impressive results. A 75%
increase in 2007 gets us to over 12 million subs. Add 50% in 2008 and
2009 and Sirius has over 27 million subscribers.
Assume they charge $15 per month for the service and revenues on that
number of subscribers is close to $5 billion. Add in a few billion in
advertising and ancillary revenue from streaming video and online
partnerships and we get to $8 billion in revenue.
That $8 billion should result in a 25% profit margin or better. That's
$2 billion of earnings and more than $1 per share. Put a 20 multiple on
that number and we get a valuation of $20.
With Sirius trading at less than $4, the potential return on investment
here is huge. There is risk with everything, but if the above scenario
plays out, we will be more than rewarded for taking the risk.
Successful investing requires patient speculation. I'm willing to wait
and see how things play out with Sirius. If I'm right, we will hit a
homerun.