Over the past few days there have been a few analyst reports issued for the satellite radio sector. One by Cowen, one by Janco, and the other by Miller Tabak. Cowen and Janco are bullish on Sirius, while Miller Tabak is neutral.
Miller Tabak analyst David Joyce issued the following:
Reducing Sirius Satellite (SIRI) Estimates for Greater Royalty Expenses and Other Costs of Revenue; Reiterate Neutral, $3.50 Target as XMSR (Pending Merger Partner) Trades at a More Compelling Relative Value
We are moderately reducing our Sirius Satellite Radio (SIRI-$2.87-Neutral-Target $3.50) estimates for a 100k reduction in estimated net subscriber additions for 2008 (to +1.788 mm from +1.893 mm, to reach 10.11 mm), as well as for greater operating expenses, particularly related to the higher programming royalty rates ruled on by the Copyright Royalty Board (CRB) in December. We reiterate our Neutral rating and $3.50 target price.
SIRI will not provide 2008 guidance until the pending merger with XM Satellite Radio (XMSR - $11.56 – Buy – Target $17) is approved, but there is general commentary on the direction of various revenue and expense items in its recently-filed 10k (both revenue and expenses should generally increase, with Subscriber Acquisition Costs (SAC) and Engineering & Development expenses relatively consistent with 2007).
Cowen Analyst Tom Watts issued the following on Sirius:
Sirius Satellite Radio
Conclusion: We are updating our SIRI model to reflect Q4 actuals, slower sub growth, lower ad revenue, and lower ARPU going forward. We are also pushing out capex for FM-5 to reflect a mid-09 launch vs. previous expectations for Q4:08. Our new model also projects quarterly estimates for 2008. We continue to expect the gov't to approve SIRI's merger with XM. However our Outperform rating reflects SIRI's FCF potential even without a merger.
Analyst April Horace of Janco issued the following:
SIRI Still Waiting – But Confident!
SIRI and XMSR Extended the Merger Termination Date to May 1, 2008: We assume that the 60 day extension would also be sufficient time for the FCC approval, if SIRI receives DOJ approval in the next couple of weeks. SIRI is confident that the merger will be approved. However, the delay is starting to make some investors nervous.
Fourth Quarter EBITDA loss Better Than Expected: SIRI’s loss for the quarter was $107 million versus our estimate of $145 million, primarily due to alower SAC of $90, versus our estimate of $107. ARPU declined to $10.19 from $10.29 in the quarter, which appeared to catch investors off guard. The decline in ARPU can be attributed to the increase in family plan subscribers, the increase in“parking lot” subscribers, and seasonal specials for the holiday selling season. As of December 31, 2007, parking lot subscribers were 913,000 up from 843,000, as of September 30, 2007. Overall, SIRI has done a great job at managing costs, and executing in 2007.
Tyler Savery Position - Long Sirius, Long XM