So far this year Sirius Satellite Radio’s (SIRI) stock is down about 1% and XM’s (XMSR) is off 6%. Looking back a whole year, both are off double digits.
The news, in general, has been good for both companies. XM recently extended its deals with Honda (HMC) and Toyota (TM). Subscription growth was a little light for 2006, but the companies indicated that would be cash flow positive in Q4 06.
Analysts have a media price target on XM of almost $20. It trades at $14.33. The median price target Wall St. has on Sirius is $5.13. The stock changes hands at $3.69. Within the last month, SIRI was upgraded by both Bear Stearns and JP Morgan.
Both companies are now taking advertising to help move revenue up. It is a delicate balance. The extra income is welcome, but subscribers may be upset that a service that they pay for is taking commercial advertising. And XM has signed a deal with Microsoft (MSFT) to broadcast its content to computers with the new Vista OS, for a fee.
Although the FCC has put some cold water on the idea that the companies could merge and benefit from cost savings, the companies have certainly been telling Wall St. that they are good standalone businesses, and they have been saying that for years.
The two companies cannot seem to shake two criticisms. One is that new multimedia devices like the iPod and Zune will be able to take wireless signals, even in cars. This would represent some competition. But, the other, perhaps more important issue, is that to keep subscriptions growing, both companies will have to invest in more expensive talent. It is the lesson that commercial radio, TV, and the film industry learned long ago. And, it is bad news for SIRI and XMSR shareholders.
Douglas A. McIntyre can be reached at email@example.com. He does not own securities in companies that he writes about.