TEXAS HOLDEM ONLINE POKER

Judging by what's going on in certain parts of the stock market, I'm beginning to think that many of these Texas Holdem players have infiltrated the canyons of Wall Street.

Let's look at one of the market's recent stars and see how this holdem action is playing out.

Sirius Satellite Radio (SIRI $7.65) has been on a tear recently, but the numbers behind it just don't make sense. Unless, of course, you're a high stakes gambler.

Sirius Satellite is named after the star Sirius, considered the largest, most brilliant star in the heavens. Given the fundamentals of the stock, its name is appropriate because it may take light years for sales and earnings to catch up with the stock's valuation.

What are these fundamentals? Let's start with market capitalization. Market cap is simply the number of shares outstanding multiplied by the current stock price. For example, General Electric (GE $37.39) has 10.57 billion shares outstanding. This gives it a market cap of $395.2 billion, one of the highest in the market.

But GE's sales are expected to climb just over $150 billion. By dividing the market cap of $395.2 billion by annual sales of $150 billion, we get a market cap to sales ratio of roughly 2.6 times. Not a particularly high number.

By this market cap to sales ratio Sirius is as high as its namesake star. Sirius has 1.26 billion shares outstanding giving it a market cap of $8.91 billion. Obviously lower than GE's market cap, but what's the all important market cap to sales number? Sales in 2004 are expected to reach almost $70 million. That gives it a market cap to sales ratio of 129 times!

Yes, the bulls on Sirius say, but next year's sales will hit over $200 million. That still gives it a market cap to sales ratio at 44.6 times earnings. And by the way, Sirius isn't expected to make a profit until at least 2006.

The so-called driver for Sirius is the growth in subscribers to their satellite radio system. Currently they have some 700,000 subscribers paying $11.95 per month or $143.40 per year. But the numbers are growing rapidly. They expect 1 million subscribers by the end of the year and 2 million by the end of 2005.

Nonetheless, the market cap per subscriber is still astronomical. In essence, shareholders are paying roughly $12,700 per subscriber (market cap $8.91 billion divided by 700,000) for customers that are expected to pay just less than $144 per year in subscription fees.

But if we calculate this market cap to subscriber number for the 2 million they're expected to get by 2006, that number falls to a "paltry" $4,455. Still a huge valuation and that assumes a 185 percent growth in subscribers in roughly a year.

Let's compare this metric to our own little Audible, Inc. (ADBL $30), (note: employees and clients of Unger Capital own shares in Audible.) Audible is the No. 1 provider of spoken word content (books, newspapers, magazines, etc.) available for download over the Internet. It also operates on a subscription basis.

Although they don't provide hard subscriptions numbers, several analysts put their current subscriber base at just over 200,000 that pay, on average $216 per year. With a market cap of $690 million ($30 per share times 23 million shares outstanding), their shareholders are paying $3,350. Audible, too, is aiming to grow its subscriber base.

ThinkEquity's analyst Mark Argento is projecting Audible to reach 1 million subscribers by 2006. Let's just cut that in half and assume 500,000. That would put market cap per subscriber at $1,380. Quite a difference compared to the $4,455 figure for Sirius. Plus Audible is already profitable and Sirius will need at least another two years to break even.

In my opinion, the college kids playing Texas Holdem have a better chance of making money than the speculators who are buying Sirius. Audible, too, is a bit pricey at this stage.

The big question for today's shareholders remains: What do these stocks do for an encore? Next week, we'll tackle that problem.