Is Sirius Worth Its Price vs. XM? (SIRI, XMSR)

Howard Stern has already earned his $500 million, 5 year contract with Sirius Satellite Radio (SIRI), says Jeff Matthews, since 'at least a million of [Stern's] 10-12 million Infinity Broadcasting listeners will have signed up with Sirius for its $13-a-month subscription service in order to listen to Howard weigh a guy’s bowel movement and whatever other hilarity he has in store.' With that matter behind us, Matthews takes a closer look at SIRI's stock price, alongside its competitor, XM (XMSR):

Sirius has 1.3 billion shares outstanding, $1.1 billion debt and $900 million of cash, according to my Bloomberg. At $7.00 a share this yields and enterprise value of $9.3 billion. That’s roughly $3,100 per subscriber based on Sirius’ stated forecast of hitting 3 million subscribers by the end of this month.

XM, meanwhile, has 222 million shares, $1.1 billion of debt and $750 million in cash, giving it an enterprise value of $7 billion at the recent $30 share price. That’s $1,160 per subscriber based on the forecasted 6 million subscribers at year-end.

So, right now, Sirius—despite having a higher fixed cost base with the Howard Stern and NFL content deals, plus less desirable satellite coverage than XM (Sirius needs another satellite to ensure complete coverage in event of a failure)—trades at almost three-times the per-subscriber valuation of XM.

Is a Sirius subscriber worth three-times an XM subscriber?... Only if you believe that Howard will continue to accelerate Sirius’ subscriber growth rate and allow Sirius to, over time, become three-times as profitable as XM.

But that is doubtful, for three reasons. First, XM dominates the factory-installed automobile market. Second, Howard Stern is probably as big as Howard Stern is going to get—a point lost on many retail accounts now buying Sirius stock to “play Howard.