History is littered with the remains of companies with business models similar to XM Satellite Radio
Consider the saga of former telecommunications giant AT&T
Even if a company isn't destroyed by its expensive infrastructure costs when a more nimble competitor comes along, an enterprise can be distracted by its pet projects, taking its eyes off more immediate threats.
High infrastructure costs are only a legitimate barrier to entry if there is no way to get around them. In XM's case the barrier has more holes in it than Swiss cheese. Terrestrial giants like Clear Channel
Show me the money
It'd be one thing if XM could figure out how to profit from its business, but the simple truth is that it hasn't. Take a look at a few key financials to see not only a sea of red ink, but also an extremely frightening share dilution trend for anyone who believes that shareholders are the owners of a business:
|Year||Revenue||Net Earnings||Shares Outstanding|
In spite of climbing revenues, the company is still losing more money than it's taking in from customers. Even the high-fixed-cost nature of the service doesn't seem to be helping -- revenues are higher now than total costs were in 2000 and 2001, yet the company is still hemorrhaging cash and destroying shareholders' wealth. To make the picture even worse for shareholders, buried in the company's most recent 10-K is this little gem:
"We have issued an outstanding securities exercisable for or convertible into a significant number of our shares of Class A common stock, including securities issued to General Motors.... On a pro forma basis as of December 31, 2004, if we included the shares issuable upon conversion or exercise of outstanding securities, we would have had 329.1 million shares of Class A common stock outstanding on that date."
In other words, if you think the past share dilution has been bad, you haven't seen anything yet. Just wait until General Motors
The Foolish bottom line
With red ink flowing as far as the eye can see, an outrageously high-fixed-cost structure, share counts skyrocketing, and competition nipping at every aspect of the company, I simply see no reason to speculate in XM's stock. The market offers far better deals elsewhere.
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