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By smuf
May 26, 2004

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

We contrarian types see a long array of reasons to buy SIRI. In the last few days several articles and posts have been negative to SIRI, primarily comparing SIRI to XMSR empirically. The negativity of the analysts alone is a strong buy signal for me so long as their criticism does not concern management fraud & incompetence, or clearly better substitute products.

I own XM stock and have 3 service subscriptions. It was almost a flip of the coin at the time I signed up for service, but not when I went long on both SIRI and XM more than a year ago after watching for several years.

My reasoning may be flawed but I think the empiricists may be short-sighted too. I've been using valuation models professionally for almost 30 years and never found one adequate for start-ups much less for emerging industries and technologies. Earnings-multiples models are fatally flawed from the get-go. Ask yourselves "from where was that multiple was derived?" and you'll see what I mean. Multiples don't give you much insight into risk or into the minds of management or consumers.

Give yourself credit for recognizing a good thing if you see it. Compare in your own mind Sat Radio to the other entertainment and info substitutes:

AM
FM
TV
Cable TV
Muzak
Telephones
Wireless (cellphones, WiFi)
DSL, Broadband Cable (or the future fiber to the home)
CD, MP3, DVD, vinyl, cassette, ad infinitum

Compare, not in terms of earnings multiples, but the following:

Simplicity and price of
- setup
- equipment
- pricing packages
Content
Coverage
Clarity
Ad annoyance factor (big on my list)
Value (price for what you get)

The more I use Sat in my cars and home, the less I have bothered with AM/FM/CD/DVD. Speaking of brain damage, think about what it takes to buy/use MP3. I also have Sat TV and I never listen to the music channels. So it has become clear to me that if I only had 2 entertainment/news/info services I would have Sat TV in my home and Sat Radio in my vehicles AND home. Granted, I'm not a big collector of recorded movies or music because I get bored with the same thing over and over.

So am I hawking the service or the stock? Neither, and both. If you believe the Peter Lynch's of the world, walking around the mall is just as valid as cash-flow models. If you like something, good chance many others like it also. The 2 million or so of us who have signed up early for Sat Radio probably won't cancel. (My wife and daughter listen to it all day now.)

In a nutshell, to avoid brain damage from your cash-flow calculations, consider this point:

Remember how long you sat back and wondered what all the strange "Internet" fuss was about? Right now another monthly subscription is a strong barrier when the value is not clear to the new-car customer. I firmly believe that will change. If you believe it, you should go/stay long on SIRI. If you don't, then this stock (or XM) is not for you.

smuf


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