This post is written as part of AOL Money & Finance's Best & Worst 2006. If you are rooting for satellite radio, cast your vote.
Back when Sirius had almost no subscribers, Sirius Satellite Radio Inc. (NASDAQ:SIRI) traded for $63. That was six years ago. XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) was $45 then. But now Sirius trades at $4 on a good day and XM changes hands around $15. These businesses looked better on paper than they did once they were operating companies. XM will end the year with something short of eight million subscribers. Revenue in the last reported quarter was $240 million. Sirius had revenue of $167 million for the same period.
But it's unlikely that early investors thought these companies would have balance sheets with over $1 billion in debt, or that they would still be losing money in 2006.
To a large extent, what happened was competition. The iPod was launched in 2001, and no one thought that within five years it would sell 70 million units. The number of cars that have built-in iPod adapters grows each day -- they even put them in BMWs.
How could satellite radio investors have looked ahead and seen the cell phone as a portable music player? There are currently two billion cell phones in "circulation" and a billion more are sold each year. Nokia Corporation (NYSE:NOK) thinks it will sell 80 million music phones this year.
Of course, plain old radio didn't go out of business either. Radio giant Clear Channel Communications Inc. (NYSE:CCU) has a market cap of over $17 billion. That's about double the market cap of Sirius and XM combined. And, believe it or not, Clear Channel's stock has outperformed the shares of both satellite radio companies over the last two years -- by a wide margin.
Early investors in XM and Sirius were dazzled by the year-over-year subscriber growth, but it was off of small bases. In essence, satellite radio did not take off like the iPod, though investors thought it would. Over the past five years, Apple Computer Inc. (NASDAQ:AAPL) stock has risen from about $11 to $91. XM's has only gone from about $10 to $15. The huge delta is the difference between product success and a product failure, at least in the eyes of investors who believed that satellite radio was the "next big thing."
It is likely that both Sirius and XM will become cash flow positive in the next year, and perhaps sooner. But, whether the businesses will grow quickly after that is still open to skeptical questioning.
Perhaps that is why Sirius's stock is down by almost half this year.
Douglas McIntyre is a partner at 24/7 Wall St.
Comfort Zone Investing: The unmighty dollar
Five winners of a weak dollar
For a quick-read on the U.S. economy, check the price of gasoline
Reader Comments (Page 1 of 1)
12-11-2006 @ 7:31PM
john smith said...
Satellite radio was never a winner!!
Bringing the likes of Howard Stern into the mix, not only reduced the listening audience to low life degenerates, it virtually guaranteed its demise by giving that porn king a multimillion dollar contract which it could never afford. Sumner Redstone must be laughing up his sleeve at the Mel Karmazan/Stern crossover from CBS to Satellite radio
12-11-2006 @ 10:51PM
Steve said...
Saying Howard Stern is the reason for Sirius' demise is foolish. Who ever heard of Sirius before Stern's signing. From 500K subscribers before his announcement to 6 million a short time later is ASTOUNDING. Even if you don't like Stern there are 118 other channels. Saying Stern has brought degenerates is like saying Sex in The City ruined all of television.
12-13-2006 @ 1:06AM
Tim said...
All media stocks are being pounded into the ground because Wall Street became addicted to the double digit returns of several years ago. Now that all of the life (and cash) has been sucked out of the industry Wall Street is eating it alive. Truth of the matter is that XM and Sirius are being harshly punished for the business they are in and the extreme expense involed in kick starting a new section of the industry. One of them will succeed beyond your wildest expectations.
12-13-2006 @ 8:55PM
rod said...
It,s too early to dismiss either Sirius or Xm satillite radio. Various comments posted are always based on emotion. If you stick to the facts you,ll realize both companies are still in there infacy and growing . You can look at a stock 2 ways short term or long term. These companies are both long term . In time they will yeild a decent profit particularly at these low level prices. Best case situation would be if they merged. Remember emotion has not a place in investing. Stick to the hard facts and base your investing on that. I forsee a very good profit here based on the infomation of the growth of both companies.
12-16-2006 @ 6:06PM
Linda said...
I am still dazzled by the potential of Sirius and XM. I agree a merger would be the best of all worlds in moving forward and I hope 2007 is the year they do it.
12-22-2006 @ 12:40PM
Michael said...
All investors that stick with Sirius Radio will be hansomely rewarded in the not to distant future whwn Mel opens up the wallet and swallows XM. I have Sattellite Radio in both my vehicles and I would'nt
leave home without it.
1-24-2007 @ 12:36PM
John Smithsanasso said...
You have to be a complete idiot to state that Howard Stern and the subscribers he brought to satellite radio are a bad thing,he took a company that had only 600.000 subscribers and has built it into a co. with almost six million!Never has a single individual had such a huge impact on any industry! This same "IDIOT" puts down everyone who listens to the stern show,WHY,Because YOU do'nt like it? So that means everyone who does listen is a lowlife? GUESS WHAT GENIUS,YOU ONLY NEED TO LOOK IN THE MIRROR TO SEE A TRUE LOWLIFE!
12-28-2006 @ 12:43PM
David B. Rye said...
Perhaps I'm typical of many consumers. I never considered satellite radio until very recently, when it occurred to me that commercial radio is responding to all the threats to its continued existence by, of all things, running MORE commercials than ever. (Go figure.) So when I opted for satellite radio, I had the choice of Sirius or XM. My answer: give me the one Howard Stern is NOT on. Some companies deserve boycotting for reasons of taste and, yes, morality. And that's why I'm a happy XM subscriber today.
12-30-2006 @ 7:28AM
JACK said...
WELL GET OFF THIS PLANET BECAUSE THE DEVIL IS IN IT! Stern only helped SIRIUS grow, no one is forced to listen to him!