Audio content provider Audible Inc. (NASDAQ: ADBL) on May 3 posted 1Q 2007 earnings that finally begin to generate some noise. The company has signed up 72,000 new members in 1Q 2007 alone, although most of these were through an introductory membership offer that does not generate substantial cash flow. Net revenue for for the quarter was up 28% to $25.3 million compared to 1Q 2006, and up 9% from 4Q 2006. More importantly, (though not as nice sounding in print) is that the net loss for 1Q 2007 was half of the net loss for 1Q 2006, $1.2 million in 1Q 2007 vs. net loss of $3 million in 1Q 2006.

In part, the net loss number is due to higher operating costs as Audible Inc. has contracted alliances with more and more content partners to offer audio entertainment, and also more educational programming. Distance education is the fastest growing segment of the post-secondary education market, and Audible Inc. is trying to become the audio education content provider of choice for many distance education programs. Among Audible's audio content affiliates are Amazon.com (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), and XM Satellite Radio (NASDAQ: XMSR), as well as more than 420 other content providers of 130,000 hours of audio programming. Audio books and audio educational programming is a viable economic format, as partnerships with Apple show. Apple currently provides advertising for Audible and co-markets for new members.

Even given Audible's modest improvements, the stock would have been a decent investment. It is up over 20% this year. Patient value-investors may want to give Audible Inc. a once over in the near future before the stock begins to attract more attention. Since the beginning of the year, there have been a number of upgrades to buy.

The short interests in both Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR) fell in May. At Sirius, it dropped 29.1 million shares to 91.3 million. At XM, the decrease was 6.4 million shares to 24.5 million. Sirius had the biggest drop in shares sold short in May than any other stock traded on the Nasdaq.

The shorts have made a lot of money on the two satellite radio stocks this year, and perhaps they believe that at current prices they are not likely to go lower. A look at the pattern in share prices show that this might be true. On January 16, Sirius shares were $4.16. They now trade at $2.80 but have been fairly flat since late April, so perhaps they have found a bottom.

XM is also trading sideways after a big drop. On January 16, the stock closed at $17.14. It has dropped to under $12, about where it traded in mid-April.

The euphoria over the merger of the two companies has evaporated as the FCC and Congress have shown some resistance to approving the deal. They are concerned that it would create a monopoly, which would raise prices to consumers. In addition, the first quarter reports from both companies showed that they are still losing money and burdened with debt.

Perhaps both stocks have found a floor because if the shares went much lower there would be nothing left to trade.

Douglas A. McIntyre is a partner at 24/7 Wall St.

It's never good when a key member of Congress makes a negative comment about a merger, especially when it is aimed at the Justice Department and FCC.

Sen. Herb Kohl, the chairman of the Antitrust, Competition Policy and Consumer Rights Subcommittee, said that the merger of Sirius (NASDAQ: SIRI) and XM (NASDAQ: XMSR) would create a monopoly [subscription], plain and simple. In a letter to the two agencies he wrote that the combination "would cause substantial harm to competition and consumers, would be contrary to antitrust law and not in the public interest."

This is not the end of the merger, but it may be the beginning of the end. XM recently took its morning hosts, Opie and Anthony, off the air for lewd remarks. The move may have been taken so that the FCC would not feel that the merger would open the door to a business supported by off-color programming. Howard Stern, the shock jock, is the morning host at Sirius.

Sirius is still a fairly small business with big debts, In the last quarter, it had revenue of $204 million, slightly below Wall St. estimates. The company has over $1 billion in debt.

In other words, it may need the merger to stay viable.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MOST NOTEWORTHY: Comcast Corp (CMCSA), Monster Worldwide (MNST), Microsoft (MSFT), XM Satellite Radio Holdings Inc (XMSR) and Sirius Satellite Radio (SIRI) were today's most noteworthy upgrades:

• Comcast Corp (NASDAQ: CMCSA) was upgraded at AG Edwards to Buy from Hold with a $33 objective, citing valuation.

• Gabelli raised Monster Worldwide's (NASDAQ: MNST) rating to Buy from Hold and sees an attractive long-term opportunity as near-term margin pressure issues are providing an opportunity.

• CIBC upgraded shares of Microsoft (NASDAQ: MSFT) to Sector Performer from Underperformer to reflect solid Q3 results and an improved 2008 outlook. Citigroup raised Microsoft's rating to Buy from Hold after the quarterly report.

• UBS upgraded both XM Satellite Radio (NASDAQ: XMSR) to Buy from Neutral citing improving fundamentals and Sirius Satellite Radio (NASDAQ: SIRI) to Buy from Neutral on better operational execution...

OTHER UPGRADES:

• Goldman upgraded NetGear, Inc (NASDAQ: NTGR) to Neutral from Sell.

• KLA-Tencor Corp (NASDAQ: KLAC) was raised to Neutral from Underperform at First Albany following positive Q3 results.

• Alaska Communications Systems Group, Inc (NASDAQ: ALSK) was upgraded to Hold from Sell at Stifel following its first quarter report.

• RBC Capital raised Baidu.com, Inc (NASDAQ: BIDU) to Outperform from Sector Perform citing guidance that indicated a reacceleration of underlying fundamentals.

• JP Morgan added Taser International, Inc (NASDAQ: TASR) to its SMID Money List and will maintain its Outperform rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

By now I'm sure you are all familiar with the controversy surrounding remarks made by Don Imus on his radio show, where he referred to the ladies on the Rutgers basketball team as "nappy-headed hos." Amid calls for his dismissal from the National Organization for Women and activists like Al Sharpton, Imus has apologized profusely and received a 2-week suspension from the network. All of this got me to thinking: Would Imus's show be better-suited for satellite radio where he won't subject to the rule of the FCC, and have more freedom to make obnoxious, ill-advised comments that are offensive on a multitude of levels?

Howard Stern, who defected to Sirius for greater editorial freedom (and a few hundred million dollars, had this to say about Imus's apology: "He's apologizing like a guy who got his first broadcasting job. He should have said, "F**k you, it's a joke."

According to a New York Post exclusive, The Carmel Group will strongly oppose the merger of Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) in a new report that is to be released today. The report goes so much as to concludes by saying that the "merger should not be approved - under any conditions - by the U.S. government."

Some may be asking, Carmel who? Well, The Carmel Group is a research firm that according to the Post, "helped kill the 2003 merger of EchoStar and DirecTV." Still, sponsored by the National Association of Broadcasters -- which, of course, opposes the deal -- it can't be called a fully independent research group.

Regardless, the 11-page report says that an approval of the deal will result "in less service, less affordability, less diversity and less choice in content and hardware." Much the same way as its report on the EchoStar-DirecTV merger, this report proves its point by showing how the competition between the two satellite radio companies benefited the consumer with a list of competitive actions and counter actions each company took.

XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) opened at $12.36. So far today the stock has hit a low of $12.02 and a high of $12.40. As of 12:25, XMSR is trading at $12.22, down $0.17 (-1.4%).

After hitting a one year high of 24.21 in almost a full year ago, the stock has been slipping over the past three months. A Carmel Group report on behalf of the National Association of Broadcasters (traditional radio) is expected to be released today, detailing the opposition to the proposed XM - Sirius Satellite Radio Inc. (NASDAQ: SIRI) merger. I get the feeling that no matter what the satellite companies do, the terrestrial radio group will oppose them. Still, this report has been getting some negative press for the two companies. The technical indicators for XMSR have been bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $15 range. XMSR has not been above $15 since the SIRI merger was first announced and has shown resistance above $12.60. This trade could be risky if the deal goes through with no trouble, but even if that happens, investor sentiment towards satellite radio could keep this stock below $15.

Brent Archer is an options analyst and writer at Investors Observer. (Free Subscription)

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.

What is the chance that regulators will permit Sirius Satellite Radio, Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings, Inc. (NASDAQ: XMSR) to combine? According to the New York Times' DealBook, probability estimates range from "less than 50%" to 50%. Thus investors should calculate the value of SIRI and XMSR under at least two scenarios: one where the deal does not go through and the other where it does.

SIRI and XMSR are the only two satellite radio companies out there now. If they merged, the new company would have a monopoly -- which would enable it to raise prices to subscribers and advertisers without the check of competition. Preventing such abuse of monopoly power is one of the reasons that antitrust laws were established. Furthermore, the Federal Communications Commission (FCC) has a rule prohibiting XMSR and SIRI from ever owning each other's licenses.

MOST NOTEWORTHY: XM Satellite Radio Holdings Inc (XMSR), Sirius Satellite Radio Inc (SIRI) and Pediatrix Medical (PDX) were today's most notable initiations:

• Wedbush initiated XM Satellite Radio Holdings Inc (NASDAQ: XMSR) with a Hold rating and $15 target, expecting a few tough quarters due to market share loss.
• Wedbush also initiated shares of Sirius Satellite Radio Inc (NASDAQ: SIRI) with a Buy rating and $5 target. The firm believes Q4 subscriber tallies suggest market share gains to over 60% in retail channels.
• Pediatrix Medical (NYSE: PDX) was initiated with a Top Pick rating and $60 target at RBC. The firm believes Pediatrix could experience accelerating growth over the next several years due to adding anesthesiology to its core newborn franchise.

OTHER INITIATIONS:

• Rochdale initiated Maxwell Tech Inc (NASDAQ: MXWL) with a Buy rating and $20 target.
• AG Edwards started Genentech Inc (NYSE: DNA) with a Hold rating, as the firm believes shares are fairly valued.
• Trump Entertainment Resorts Inc (NASDAQ: TRMP) was started with a Buy rating at Goldman Sachs.
• Deutsche Bank initiated Ariba Inc (NASDAQ: ARBA) with a Buy rating and $12 target.
• Alcatel-Lucent ADS (NYSE: ALU) was initiated with a Peer Perform at Bear Stearns.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Short sellers showed an odd sort of faith in Sirius Satellite Radio Inc. (NASDAQ:SIRI), or in the already low price of its shares anyway. Short interest in the company's stock fell 22.2 million shares in January to 118.9 million.

No matter what the company seems to do, the shares remain stuck in a hole under $4. The company has announced solid subscriber numbers for the end of 2006 and said that its operations will be cash flow positive for the fourth quarter of last year. And, rumors continue to swirl that SIRI might merge with its only direct competitor XM Satellite Radio Holdings Inc. (NASDAQ:XMSR). This article from last week says the FCC rule that wouldn't allow the merger could be changed.

SIRI stock has a 200 day simple moving average of $4.11, and perhaps some in the market believe that the stock has found a bottom. It may not move up much, but the shorts may not need it to.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MOST NOTEWORTHY: XM Satellite Radio (XMSR) and Cisco Systems (CSCO) topped today's list of notable downgrades.

• XM Satellite Radio Holdings 'A' (NASDAQ: XMSR) was downgraded by Bank of America to Neutral from Buy, with a $17 target, as they see limited upside potential and significant downside potential if the company doesn't merge with Sirius Satellite Radio (NASDAQ: SIRI).

• Cisco Systems (NASDAQ: CSCO) was downgraded at Prudential and Bank of America to Neutral, citing valuation for the move.

OTHER DOWNGRADES:

• Cablevision Systems 'A' (NYSE: CVC) was downgraded to Neutral from Buy at Bank of America as they believe the Dolan family's $30/share bid is probably their best and final offer.

• Getty Images (NYSE: GYI) was downgraded to Sell from Hold at Kaufman Brothers. They cited the changing stock imaging market, lowered expectations for 2007 and the options review overhang for the downgrade.

• UIL Holdings (NYSE: UIL) was downgraded to Underweight from Hold at BB&T, citing valuation and lowered estimates.

• RBC Capital Markets downgraded Abitibi Consolidated (NYSE: ABY) to Underperform from Sector Performer.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Nokia Corp (NOK), Sirius Satellite Radio (SIRI) and XM Satellite Radio Holdings (XMSR) topped today's list of upgrades.

• Goldman Sachs upgraded shares of Nokia Corp ADS (NYSE: NOK) to Buy from Neutral and added the company to their Conviction Buy List. Goldman believes Nokia's profit cycle has bottomed and shares could rebound from current levels. In addition, the broker expects Nokia to report solid fourth-quarter earnings.

• JP Morgan upgraded Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio Holdings 'A' (NASDAQ: XMSR) to Overweight from Neutral as they believe retail and competition fears are largely understood and that both companies will grow subscribers due to deals with automakers.

OTHER UPGRADES:

• Wachovia upgraded YRC Worldwide (NASDAQ: YRCW) to Outperform to Market Perform citing the trucker's recent realignment actions in its regional and long-haul LTL's, the timing cycle to buy trucking stocks and valuation.

• JP Morgan upgraded shares of FedEx Corp (NYSE: FDX) to Overweight from Neutral, citing valuation.

• Prudential upgraded Abercrombie & Fitch Co 'A' (NYSE: ANF) to Overweight from Neutral and raised their target to $89 from $66, citing valuation and easier comps.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

By now, everybody heard. Sirius Satellite Radio Inc. (NASDAQ:SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) may merge. In fact, SIRI and XMSR have been among the hottest stocks so far in 2007 rising 15.8% and 18.5% respectively on these speculations. Yesterday was another strong day with SIRI and XMSR respectively adding 5.1% and 4.5% to their value.

So can a merger occur and who would be the winner?

• Stifel Nicolaus analyst Kit Spring believes so and puts the value of the merger to be equally split, with perhaps a slight premium to XM.
• Ryan Vineyard of RBC Capital Markets believes the merger would be good long-term.
• Citigroup analyst Eileen Furukawa, whose note on Jan 10 was the one that actually sparked life in the merger rumors, thinks that while the merger might be approved by the Department of Justice, it is less certain to be obtaining approval from the Federal Communications Commission. It could become an option if the government takes a broader view of the radio market . She rates XMSR as Buy.
• Tuna Amobi from S&P, who isn't bullish on the stocks rating XM a sell and Sirius a hold, doesn't think the rivals could pass regulatory muster.

What about shareholders? Would it be good for them?
The general view is that synergies arising from such a merger would be most beneficial to both companies and their shareholders. However, some argue that this is a shortsighted view as monopolies don't always prove to be the best run businesses.

More than that, with eliminating any kind of competition within the satellite radio segment, would the consumer be hurt with less programming and higher prices? If that happens, will the companies again suffer?

So after their big run this week, are Sirius and XM on a ride to ... nowhere?

Once, when canoeing in the middle of an interior lake (after two very long portages), a lightning storm began. It was mortally dangerous. Someone on a campsite nearby died from a lighting strike during the same storm.

Why am I telling you this? Well, with all the excitement of the past couple of days at CES and MacWorld, especially the launch of Apple Computer Inc.'s (NASDAQ:AAPL) iPhone, almost no one paid attention to XM Satellite Radio Holding Inc.'s (NASDAQ:XMSR) new gadgets that were introduced at CES on Monday. Specifically, I'm talking about the Bushnell Onix 400, a device that has a GPS system and tunes to XM's real-time local weather.

The device will only be available in the summer, but had I had the opportunity and given my past experience, would I have bought it? I'm not sure. First, at $499 it's a little pricey. Second, while the device may help when I'm out there in the wild, it also in a way would defeat the purpose of being out there in the wild. Third, how often would such a device be needed? On the few occasions I go camping?

Well, I guess that it's no wonder this announcement didn't get much attention. The other devices it introduced aren't so innovative either. I also doubt Sirius Satellite Radio Inc. (NASDAQ:SIRI) will come out with any groundbreaking devices at CES.

While XM recently failed to reach the lower end of its subscriber projection, Sirius is paying Howard Stern a bonus for having 2 million more subscribers than originally forecast. However, both companies' retail sales have been lacking, and the devices they each offer haven't improved much to provide new incentives. At least as far as retail sales are concerned, I expect more of the same.

And if XM goes mobile with a cell phone from Cingular Wireless and Alltel Wireless, what's to prevent Apple from going satellite next?

Sirius Satellite Radio Inc. (NASDAQ:SIRI) said that due to exceeding its pre-Howard Stern subscriber estimates for the year ended 2006 by over two million subscribers, it will pay the radio celebrity a bonus worth about $82.9 million in about 22 million shares.

This is exactly what Sirius had hoped for when it signed Howard Stern in the first place. If there was ever a radio personality to match Oprah's TV status, Stern is definitely the one. When Sirius signed Stern in 2004 for a $500 million over five years contract, it had 600,000 subscribers.

Stern's contract also provided for a bonus option. Back then the estimated number of subscribers at the end of 2006 was 3.5 million. Lucky for Stern, last week Sirius reported more than 6 million subscribers -- a sign either analysts underestimated the number, or that his impact was indeed so effectual.

Karmazin did the jig, of course, touting a successful strategy. But who's the real winner here? Undoubtedly, all the paid celebs are doing very well with payoffs from XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) and Sirius as that has been their strategy -- getting celebrities to attract subscribers. But are the companies better off for it?

Both SIRI and XMSR shares are down. In the last year, SIRI lost 42% of its value and XMSR 49%, underperforming the market significantly. While XM recently missed on subscriber growth, Sirius announced a first quarter of free cash flow.