SAN FRANCISCO (CNN/Money) -
Anyone monitoring the Nasdaq's "most active" list during the past few weeks can't have missed the sudden activity in shares of satellite-radio company Sirius.
The lowest daily trading amount for Sirius (SIRI: Research, Estimates) in the last month was 43 million on May 19. In the first week of June, north of 250 million shares swapped hands each day, on average. The stock has shot up from 41 cents in mid-March to about $2.20 at press time. Not a bad run. What the heck is going on?
Quite a bit. Before we discuss the trading activity itself, let's examine the company. Since early May, Sirius has secured $175 million in financing that should get it to "free cash flow neutrality," and that infusion is seen by many as the last the company will need.
It has also obtained $135 million in capital earmarked for new content in its escalating war with its only competitor, the market-leading XM (XMSR: Research, Estimates). Part of that $135 million will go toward furthering key relationships with auto manufacturers.
Sirius also announced it was releasing 75 million additional shares to the public and unveiled results for its first quarter, during which it had increased its subscriber numbers.
That's a lot of activity for a few months, let alone a few weeks. And for Sirius -- a company whose stock floated along at less than $1 for a while, raising the specter of delisting -- the boost couldn't have come at a better time. Even though most of the recent news has been positive, investors shouldn't think for a minute that this company is out of the woods.
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For one thing, Sirius is a distant second runner in a largely untested, two-player market. XM launched six months earlier than Sirius in 2001, scored some great deals with carmakers, offers a service that costs about $3 less per month than Sirius's, and boasts more than 500,000 subscribers.
Sirius is working to improve its deals with carmakers, and it has only about 68,000 subscribers. Sirius's satellites actually launched six months before XM's did, but they encountered some chip difficulties, delaying rollout of the service. This raises a concern about the company's ability to execute -- something for investors to keep in mind.
About those auto industry relationships: XM has an exclusive pact with GM (GM: Research, Estimates) whereby XM pays GM $40 million per year and offers the carmaker a cut of revenue. In return, GM installs XM radios at the factory level in many of its popular car lines.
Sirius recently signed up Ford (F: Research, Estimates) and Chrysler as partners (terms of the deal weren't released), but the radio technology there is installed at the dealerships, not on the factory floor.
"The dealer installation brings an additional layer of uncertainty into the process," says Susan Kevorkian, an analyst with IDC. "The dealers have to be trained, and some will consider it to be more of a priority than others. There's less variation in factory installation."
Moving those relationships to the factory floor will be a tough battle for Sirius, and some investors obviously think a good chunk of that $135 million will help it move along.
But why the most actively traded stock on Nasdaq?
"That's great," I hear you saying. "But why are 250 million shares trading hands every day?" There are two main reasons for this.
First, most institutional investors don't traffic in stocks that trade for less than $5. This realm is dominated by day traders and hedge funds, most of which are heavy-volume traders and are in and out of positions in a day or a week. When institutions trade, volumes tend to diminish.
Second, and harder to quantify, is the speculative frenzy surrounding this stock. As a category, satellite radio has scored some key partnerships and amassed more than 500,000 subscribers in a relatively short time. Many believe that it could be a major media force in a few years -- and want to get in early.
Steve Mather, a research analyst with Sanders Morris Harris who has a "hold" call on Sirius, sums up investor sentiment nicely: "These two stocks [XM and Sirius] have a chance of changing the way we listen to radio. But they're in early stages, and they're not home runs yet."
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