Are You Sirius?
August 1st, 2006 by Grant in: Investing, Stock Thoughts
Sirius Satellite (SIRI: chart, web) offered expanded losses today even though revenues were up by a factor 3 versus the same quarter last year. Sirius lost 17 cents a share versus 13 cents a share last year.
On the bright side, Sirius increased its subscriber forecast for the rest of this year, expecting a total of 6.3 million subscribers by the end of the year. Their previous forecast was 6.2 million by year end.
While I applaud the fact that their being aggressive with their forecast, I think broad economic forces will restrain their subscriber growth.
With gas prices high and moving higher, not to mention climbing interest rates, I suspect that the money flow from unnecessary luxury goods (like fee based radio) will migrate towards everyday necessities like food and gasoline. Subscriber based gadgetry will likely be hit first once the monthly statement, along with the credit card bill, arrive on doorsteps.
The company is already seeing this, as the monthly rate of subscriber cancellations is up to 1.8% from 1.4%.
Sirius CEO Mel Karmazin said during his conference call that:
“…the increasing number of cars manufactured each year that includes satellite radio gives Sirius confidence that the medium is going to be larger than most of the forecasters have predicted.”
While I like the optimism from the head man, I fear he is basing his optimism on another sector that will be reined in by a bearish economy. It may be that Sirius will have more radios installed in new cars, but it takes a buyer for those new cars to turn fellow terrestrial radio listeners into subscribers.
Disclosure: I own no shares of SIRI
Additional Information
Sirius Second Quarter Earnings
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August 2nd, 2006 at 6:23 pm
Another target for the wrath of a declining economy is Starbucks. SBUX for you home gamers.
They’re starting to see a drop in sales, and I think it will only get worse!
August 2nd, 2006 at 6:32 pm
I still like Sirius, and I think it’s a no brainer compared to XM. Some people were skeptical of how Mel shelled out so much money to Howard Stern, but in the long run I think he knows value when he sees it.
I don’t think the economy will have a huge effect on the sat. rad companies. Gas prices are already high and it doesn’t seem to have a huge effect on the way people spend money.
If you want to group sat radio into the luxury goods and services category, do you think they’ll cut back on cell phones? I doubt it.
Joe
August 2nd, 2006 at 6:35 pm
Joe, I’m not so sure satellite radio and cell phones fall in the same category.
I also think it will take some time for high gas prices to filter down through the economy. So long as gas prices stay high, I think you’ll see a continued increase in just about everything.
Air fares are increasing, shipping costs are going up, the price of groceries are going up… I think this trend will continue for quite some time as well.
Thanks for your opinion!
Grant
August 4th, 2006 at 5:55 pm
What’s your beef with Siri? This company has more potential than any other! Sounds like you have a thing against the company.
Satellite radio is the next great technology that everyone will have, much like the conversion from 8 tracks to tapes to CD’s to DVD’s.
Load the boat and get sirius or be left behind!
August 4th, 2006 at 6:02 pm
I agree, Grant, and I think you’ve got a good understanding of the markets. I think disposable income will drop for the foreseeable future, and recurring payments for luxury items will finally slap people in the head causing them to cancel these payments.
I also agree with Pablo on SBUX, but I think there are other factors related to their decrease in sales. Namely the heat.
February 20th, 2007 at 10:05 pm
[…] Some analysts suggest that the two companies could stand alone should the deal end up being torn apart, but it will be a struggle to manage costs for a long time to come. Let’s face it, Sirius (XM too) hasn’t posted stellar numbers as of late… […]