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Thursday, September 07, 2006

Sirius Back At $4

Stocks: (XMSR)(SIRI)

Every time that Sirius gets a price rally going in its stock, the shares quickly drop back toward $4. It has repeated the same pattern three times since May. The company still trades at 14 times sales, which by most yard sticks is pretty high.

Perhaps the oddest thing about the Sirius stock is that the market’s perception has seemed to be that it is doing better than competitor XM Satellite Radio. Sirius has raised its subscriber target for the end of the year. XM lowered its target. XM had to pull some of its portable radios when the FCC had a problem with the receivers, and XM has been asked by the SEC to provide information on its 2005 forecasts.

Surprisingly, over the last three months, XM’s stock is down 10% and Sirius is down 3%. Based on all of the news, investors would think that the difference between the two stocks would be much larger. Sirius should have done better.

Gramercy Capital Management recently argued in Forbes that when both SIRI and XMSR were near their highs, the total number of satellite radio subscribers was only 4 million. That number is now approaching 14 million.

There is a perception that the momentum of getting new subscribers has shifted to Sirius. It will add 1.6 million new customers between now and the end of the year, according to its forecasts. XM’s most rosy forecast is to add 1.2 million new subscribers. But, even with this math, XM will be at about 8 million subscribers at year-end with Sirius at about 6.3 million. The distance both companies have to go to become profitable is very different. The 1.7 million subscriber lead that XM means a great deal, particularly on the cost side.

Both companies lose a huge amount of money. Sirius lost $230 million on an operating basis in the June quarter on $150 million in revenue.

Until Sirius closes the gap with XM, or shows it can make money on far fewer subscribers, it is unlikely to outperform XM in the market, and that means that getting away from $4 could be very tough.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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