Who will win the satellite radio wars?  SIRI reports early morning on February 27 and XMSR reports on February 26 early morning.  The past quarters are largely irrelevant.  The guidance for 2007 and the subscriber numbers are what will guide the street.  The companies already gave 2006-end subscriber numbers so the actual revenues should be quite close to estimates.  Here are the current forecasts for the results and there is guidance for Q1 and 2007:

XM Satellite Radio (XMSR-NASDAQ)
Q4 2006: -$0.72 & $243M
Q1 2007: -$0.38 & $268M
FY 2007: -$1.65 & $1.2 Billion (+/-)

SIRIUS Satellite Radio (SIRI-NASDAQ)
Q4 2006: -$0.19 & $171.9M
Q1 2007: -$0.11 & $212.5M
FY 2007: -$0.45 & $1.0 Billion(+/-)

XMSR Already said it ended 2006 with 7.63 million subscribers and that was up just under 1.7 million from 2005 (442,000 in Q4).  SIRI ended 2006 with 6.02 million subscribers and that was up roughly 2.7 million for 2005 (905,000 in Q4).

At these growth rates SIRI ‘could’ pass up XMSR in total subscribers around the presidential election at the end of 2008.  Most likely we’ll get to hear the company annual guidance for 2007-end subscriber targets out of each company.  These two companies have been hinted at, rumored to be, speculated about, written about, and hoped for a big merger between the two.  My guess is that whatever happens after earnings if there is no merger or no one-sided expression of interest in a merger then the street will start looking at these as individual satellite stocks again.  They might not blow off a merger hope with 100% certainty, but the cult stock traders will have much less to talk about in these names if they are going to remain independent.  Both companies are projected to lose money on a yearly basis and the street would treat any capital raising attempts with some skepticism and punishment.

What is interesting is that just this week XMSR did a sale and lease-back of the transponders for its XM-4 satellite for some $288.5 million.  This is going to change the operational structure and it certainly just created a ‘satellite asset marketplace’ for both XMSR and for SIRI.  Have you priced a satellite launch?  It ain’t cheap by any measure, nor is the satellite itself.  There is also the music companies wanting more out of the satellite companies now.  The gains from capitalizing their satellites to unlock some of that value could be somewhat offset by higher content costs. 

There are other avenues that the companies can use for future revenues and the combined companies could have more offerings than just satellite radio competition.  Go ahead and expect many more articles comparing these two in the coming days, and probably even from us.

Jon C. Ogg
February 15, 2007

Below is a comparative chart showing the stock performance:

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