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Satellite Radio Crosses Finish Line Early
Satellite Radio Crosses Finish Line Early

The pay radio rivals each boasted Monday that they have bettered their year-end subscriber goals about a week ahead of schedule, prompting Wall Street traders to sell XM Satellite Radio off a bit while bidding shares of Sirius Satellite Radio higher as the smaller service narrows the gap enjoyed by the larger.

Sirius, riding a wave of publicity surrounding a $500 million deal with Howard Stern that won't kick in for another year and the hiring of Mel Karmazin as its chief executive, passed the 1 million mark, while XM cruised past its 3.1 million subscriber goal.

In passing their goals early, Sirius boasts a better-than-285% subscriber growth this year, while XM claims more than 138% growth. Sirius shares tacked on 15 cents on Monday to $8.10, having now risen 303% from their 52-week low. Shares of XM lost 19 cents to $39.73, having risen 95% compared with the 52-week low.

While some analysts see shares of XM as fairly priced and Sirius shares as overvalued, ChangeWave Research's Tobin Smith still likes both companies.

"People underestimate what happens when you move satellite radio from your car to your home and to your office. That's when you listen to regular radio a lot less," he said.

Smith, a regular on the Fox News program "Bulls & Bears," projects Sirius shares at about $12 a share and XM shares at $45 in a year's time.

Catalysts for both companies include plans for hardware to be agnostic so that consumers can get either service on a single radio, while a potentially huge catalyst for Sirius might be a deal with Apple Computer whereby songs heard on Sirius can be instantly purchased and downloaded via iTunes.

"Sirius has good relations with Apple," Smith said. "Reports we get suggest this might be a real deal, not just a rumor."

Banc of America Securities analyst Jonathan Jacoby, however, wrote Monday in a research note that he still rates Sirius a "sell" with a price target of just $3.68, while he still rates XM a "buy."

Sirius, he wrote, is clearly "in a much better position than several months ago. Nonetheless, at these levels, we continue to believe that the stock is significantly ahead of itself."

Jacoby warned that Sirius shares can be hurt by the company's need to raise funding because of what might become a pricing war with XM over hardware.

Agreeing with Smith, though, was Vintage Research analyst Alden Mahabir, who wrote that the Sirius and XM news bodes well for the sector and that he remains bullish on both stocks.

"Given XM's better-than-expected fourth-quarter growth while Sirius is in the midst of its strongest quarter ever, it appears that incremental marketing dollars are wooing more and more subscribers to satellite radio, thus growing the market as opposed to merely redrawing the market share lines," he said.

Mahabir upped his price target for Sirius shares to $8.50 and raised XM to $43. He now estimates that XM will have 5.21 million subscribers by the end of next year, while Sirius will have more than 2.25 million. By 2010, XM will still lead with 17.31 million subscribers to about 14.63 million at Sirius.

In announcing their subscriber numbers, the CEOs of each company sought to position theirs as the premier satellite radio service.

"Holiday shoppers bought XM radios in record numbers, reinforcing XM's significant market leadership position in satellite radio," said XM chief Hugh Panero, stressing the popularity of the XM2Go MyFi and XM SKYFi2, radios that allow pause and rewind functionality. He also touted the company's recently inked 11-year, $650 million deal to stream Major League Baseball games.

"We predicted that we would reach 1 million subscribers by year end, and we did it," countered Karmazin of Sirius, stressing his company's recent $220 million, seven-year deal with the NFL.

Karmazin also touted a recent proclamation that auto information Web site Edmunds.com named Sirius the better satellite radio service based on overall programming.

"This recognition from Edmunds.com, combined with recent data showing an increase in Sirius' retail market share during holiday season, clearly indicates that we are doing an excellent job of executing on our business plan," Karmazin said.