Static for satellite radio
Unless you like the sound of no earnings and stupid valuations, turn the dial.
February 25, 2002: 6:09 p.m. ET
By David Futrelle
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NEW YORK (CNN/Money) - Nostalgic for the good old days of the tech bubble? Pine no more. Just take a look at the stocks of two satellite-radio companies, XM Satellite Radio and Sirius Satellite Radio.
Last week, Robertson Stephens analyst James Marsh stuck a "buy" rating on XM (XMSR: up $0.66 to $13.16, Research, Estimates) and 10 of the 11 analysts covering the stock rate it the equivalent of a "buy" or "strong buy."
XM and Sirius both saw their stocks skyrocket some 200 percent in the last three months of last year, based on little more than faith and hope and dreams. Though both stocks have pulled back somewhat, XM is still trading at more than three times its September low.
What's all the excitement about? XM Satellite and Sirius (SIRI: up $0.32 to $4.68, Research, Estimates) are essentially marketing really, really expensive car radio. There is a fixed monthly service fee (XM charges $10 a month and Sirius charges $12.95), plus the cost of a receiver (which start as low as $300 but quickly run upward of $1,000).
For that, bored commuters can treat themselves to dozens of specialized digital radio stations delivered via satellite to their cars. Each service offers 100 channels of music, news, sports and entertainment designed to satisfy the most particular of tastes; many are commercial-free. XM's diverse offerings range from rockabilly to opera; Sirius boasts, among other things, a station DJed by legendary hip hop turntablist Grandmaster Flash.
XM, which started rolling out its service late last year, has only a slight smidgen of revenue. And though actual earnings still remain somewhere over the rainbow, the company sports a market value of more than $900 million, giving the stock a price/sales ratio somewhere north of, ahem, 1,700.
And Sirius, with literally no revenues (it only just started rolling out its services in a handful of cities) nevertheless sports a market cap of some $300 million.
It's built -- will they come?
It may seem bizarre to expect Americans to pay more than $100 a year to listen to their car radio, but fans of the two companies note that the services are getting mostly rave reviews from early users and critics.
Indeed, a reviewer at Entertainment Weekly recently gushed that XM's "almost hilariously plentitudinous multi-genre programming" -- ranging from Daft Punk to Jim Nabors -- could prove intoxicating to music buffs of all varieties. "It may just be the exhaust fumes talking," EW's Chris Willman wrote, "but I think I'm in love." (Not surprisingly, XM quotes Willman's opinion in promotional material.)
XM expects to sign up some 350,000 subscribers in 2002; Sirius would be happy to make it to 200,000. The promise could one day be when satellite radios become standard features in cars. GM will offer XM-compatible radios in some two-dozen model cars this year; Sirius has deals with DaimlerChrysler and Ford. Ultimately, both companies expect to have subscribers numbering in the millions. If they want to justify the faith of their early fans, they'll have to.
In any case, you'll be hearing a lot more about both services in the coming months. XM, for its part, has already launched a massive publicity blitz. Perhaps you've seen the TV ads, which feature an assortment of objects and people, from basketballs to David Bowie, plummeting to earth like so many chunks of Skylab.
They're cute ads, I'll admit. But I'm not sure that's really the best image to be burning into the brains of potential investors -- what with all the plummeting and all.
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