Each subscriber is worth $600 to SIRIUS

Saturday, July 22, 2006

Rich Vanden Boogard wrote an article at SeekingAlpha entitled Sirius Satellite Radio: Bleeding Cash Faster Than Subscriber Growth where he wrote:

they continue to lose more and more money as they grow subscibers. Adding subscribers doesn't mean value's been added and the stock should go up.

Lest we not forget Krispy Kreme Donuts (KKD) which suddenly sprouted stores everywhere?

I thought that was a pretty dumb thing to say, given the big spread between the revenue SIRIUS gets from each new customer and what it costs them to acquire each new customer. Sean crunches the numbers on the TSS-Radio Blog:

In this case I would argue that it does mean that value has been added. Each month 1.8% of SIRIUS' subscribers quit, according to the first quarter results announced by SIRIUS. That means that each year about 21.6% of Sirius' subscribers quit. That means that the average customer stays with Sirius for (1/21.6%) 4.6 years. At $13 / month, 12 months / year that means that for every subscriber SIRIUS gets $722 in revenue, over 4.6 years for each subscriber that they sign up.

It costs SIRIUS $122 for each subscriber that they attract, according to SIRIUS' 1Q results announcement.

In my view, that means that every time SIRIUS signs up a subscriber, they are netting $600 in profit. Why then wouldn't value be added each time a subscriber signs up?


Blogger shusky said...

Rich Vanden Boogard is still only a student tring to get a mba.

Sat Jul 22, 08:48:00 PM EDT  

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