A Serious Look at Sirius

05/16/2003 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

"If you got in on XM Satellite Radio (XMSR ) last December, you are sitting on gains of 470%," says Tobin Smith, editor of ChangeWave Investing.  "It looks like satellite radio is finally getting some traction with consumers as the units are getting easier to find and brand awareness grows due to increased promotion of the services. Although we can't assume the same performance, we now suggest buying XM's main competitor - Sirius.

"Do you have the stomach for volatility? Then you might want to consider another speculative play in the satellite radio field, Sirius (SIRI NASDAQ). Sirius has revealed a recapitalization plan worth $1.2 billion, which should help keep it on the air for the time being. Sirius, which is clearly the underdog in this market, will be cash flow positive at two million subs -- about one million less than XM -- but has quite a way to go from its end of 2002 estimate of 30,000. This number will surely rise as the firm's radios start to appear in DaimlerChrysler, Nissan, Ford, and BMW vehicles, and I'm anticipating the same kind of good news flow to boost SIRI the way it has boosted XM.

"Sirius is the other player in this government-sanctioned duopoly called satellite radio. That's it -- these are the only two players. The history of satellite radio dates back more than ten years, but the competition only really began to heat up a few years ago as the two firms launched their satellites into orbit and their radios hit the markets. XM has now taken a solid lead in this race, but things are starting to look up for Sirius. Promotion and brand awareness is increasing, the Sirius radios are starting to appear in stores, and they will get more traction in the upcoming 2004 car models. Let's add SIRI to our long-term buy list on pure valuation with a buy under of $1. There are no guarantees here, and you have to be prepared to deal with the ups and downs of the stock -- this is no get-rich-quick recommendation. But if you have 'Vegas' money to risk, and the guts to hold it, this speculative play could turn out like XM -- and, boy, was that worth it."

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