Motley analyst comes Fool circle


Last year Wall Street watcher Motley Fool had the XM/Sirius merger pegged as a go. This despite the fact that one of its own analysts had picked one of the components, XM, as one of the worst portfolio picks of the year. As the sun rises on 2008, the merger still hasn’t been approved, and the stock is back on the worst pick pedestal.
Analyst Philip Durell says that the numbers that are rising are the wrong ones for the most part, and that the positive growth in revenue is deceptive, since it comes at a steep cost. Subscribership is up, too, but that has been somewhat deceptive: Durell noted a gross increase of 952K subs for Q3, but that translated into a mere 315K net subscriber additions as many sampled the service for free as part of a new car acquisition and then returned to local radio once the trial subscription ran out. He says it costs the company about 116 dollars to add a subscriber, up from 94 dollars a year ago.

Durell notes that the merger, if it goes through, would certainly help the two satcasters with administrative costs, and would prevent "car companies and one-air talent" from playing "one satellite company off against the other." He concludes, "Yet joining one value destroyer to another isn’t likely to bring the enterprise to the promised land of profitability."

RBR/TVBR observation: We can’t help noting that one of the big benefits touted for the merged companies is stripping talent and auto manufacturers of the ability to negotiate with two competing companies. Sure, it WOULD be nice if satellite audio became a monopoly with dictatorial powers over those it does business with, including subscribers. If one or the other company, or both, are in danger of going under, they should come clean and say so. Otherwise, they should buckle down and compete with one another as is clearly specified in their charters.