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Getting serious about Sirius


Dear Mr. Berko:

Several months ago, you recommended several “stocks for the future.” Among them was Sirius Radio (one of the two radio companies that had a license to broadcast crystal-clear programs to your car, no matter where you are via satellite), which was trading at $1.60 a share. Well, I bought 2,000 shares, and it’s now $3.01.

I read that Panasonic and Kenwood now have a car radio that can also get clear digital signals. This new radio offered by two huge companies whose assets must be 1,000 times larger than Sirius lets listeners skip many ads, receive all local programs clear as a bell, get traffic reports, text messages, connect to Internet sites and shop online. SIRIUS can’t do any of that and doesn’t have the capital to even attempt to include some of those features.

Do you think I should sell my 2,000 shares of Sirius and take my $2,800 short-term profit?

D.G., Fort Walton Beach, Fla.

Dear D.G.:

A half a lifetime ago, I passionately craved restaurants boasting “all-you-can-eat” smorgasbords because I believed more was better. Well, it didn’t take me long to discover that the food was generally lousy, that it was often cold, the paper napkins carried advertising, they charged extra for Coke, coffee or tea, and you were expected to leave a tip even though it was self-service. Because I would sometimes “gorge out,” I often suffered a sour stomach. More is not better. It’s just more.

So it is with Panasonic, Kenwood and others who will unveil new car radios that cost between $700 and $1,200, versus an average $180 for radios that pick up a satellite signal.

There are about 250 million cars and trucks on Canadian, British and American roads today. At least 98 percent of those drivers turn on their radios. About 1.2 million of those cars are equipped with satellite radio.   Most of those listeners don’t give a hoot about high-fidelity digital sound (which SIRIUS broadcasts) or connecting to the Internet or getting traffic reports from Fairbanks or shopping interactively with advertisers, ad nauseam.

I believe in the coming decade there will be more than 300 million vehicles on roads in the English-speaking world and that at least 25 percent of those cars and trucks will have satellite radio. That’s an audience of 75 million listeners.

This estimate is conservative because I’m not including radios in commercial airplanes, homes, offices, trains, buses, bars, etc. These listeners don’t want a smorgasbord of gimmickry, games and gizmos. They want better programming.

Sirius Satellite Radio Inc. (SIRI-$3.01) has made some great strides in the past year. Subscriber count grew from 30,000 to over 300,000. Long-term debt has fallen from $700 million to $200 million. Revenues for 2003 were approximately $11 million, up from $120,000 in 2002. In December, SIRI inked a deal with BMW, signed a multiyear contract with the National Football League and announced a deal to bring satellite radio to Canada.  With 998 million shares outstanding, SIRI has a book value of about $1.20 per share.

In the coming 10 years, the company could very conservatively have 30 million subscribers, which could generate annual revenues of $10 billion to $13 billion and net profit margins as huge (30 percent) as those of Microsoft, which would place earnings between $3 and $4 a share. And in 10 years, SIRI may be one fat, filthy rich cash cow with its shares trading at 25 to 30 times earnings.

Some of my clients and I purchased shares of SIRI at $1.40, and I have not advised them to sell. We may hold the stock for quite a while longer. I believe that SIRI and its competitor, XM Satellite Radio, represent the future of radio just as cable was to TV and cellular was to the telephone.

However, you’ve got three choices:

1. Sell your 2,000 shares and take a nice profit.

2. Sell about 1,100 shares, which will return your original principal and let you ride free with the remaining 900 shares.

3. Be a believer, shoot for the moon, keep the entire stash for a couple of years and hope (and pray) that your aim is accurate.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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