Mark Wienkes at Goldman Sachs liked the cost controls at Sirius Satellite Radio, but didn’t like the trends on the subscriber side and sees net adds declining for the second year in 2008. After looking at the Q4 data from Sirius (2/27/08 RBR #40), Wienkes sent client a note calling the results "mixed," with softer revenues, "but good expense controls," producing a lower than expected EBITDA loss. In his view, the compay is "swimming upstream as best they can."
On the subscriber side, he said retail net adds were down about a million in 2007. OEM net adds grew, but only by about 600K, which was 400K shy of countering the retail decline. "We think this trend will continue in ’08, and expect just 1.9 million net adds vs. 2.3 million in 2007 and 2.7 million in 2006. The financial implications are that while Sirius is moving toward EBITDA breakeven, the worrying sub trends, rising churn and shrinking ARPU [average revenue per user] seem likely to make realization of free cash flow – sufficient to justify today’s valuation – challenging at best," Wienkes wrote.
The analyst is sticking with his 12-month target price for the stock of 2.25, which is less than the current trading price.
RBR/TVBR observation: Here is the reality of Wienkes analysis of Sirius – Swimming Upstream. It is like the life cycle of the Alaska salmon which have a most interesting life. Taking them from the river or a stream of the Alaska wild into the high salty seas and back again. Right back to their place where they were born and if they prevail the rugged course back to their stream where they breed, lay their eggs. Within a week after spawning they usually die. So in short if Sirius is making this voyage and the analysis is correct of swimming upstream we already know the ending. It dies. Think about it.