Column Sends Sirius Backers Into Orbit

I signed up for Sirius service back then and loved it. Still do. I get it.

But the purchase of a stock is not a vote in favor of a product. It represents a share of the future earnings stream of a company. Over the long history of the U.S. stock market, there has been a range of valuations for hot new technologies and media. And while Sirius shares sat at the extreme low end of that range two years ago when most were skeptical of its potential, it's now way above the top of the range as millions have piled on board.

These days the market thinks Sirius will be eight times more successful than eBay (EBAY) and 12 times more successful than Yahoo! (YHOO) even though its management has never earned a dime and hits shareholders in the face with dilution and debt.

That may be right; who knows? Good investing is about anticipation, not reaction. Maybe satellite radio will cure cancer, turn water into wine and bring peace to the Middle East. At the moment, however, it only promises to solve the boredom of a long commute and save the world from light-beer commercials -- and that might not be good enough.

Indeed, the bottom line is that above $4, the stock represents a bet that a single radio personality, Howard Stern, will be able to deliver 10 million subscribers over the next couple of years. That makes Sirius a sort of Martha Stewart Living Omnimedia (MSO) of the radio dial, except 27 times more expensive. If anything happens to the guy, the stock goes up in a poof of smoke. No one is going to pay 190 times sales, much less earnings, for a service that simply provides an opportunity to hear uninterrupted NFL games and Kelly Clarkson tracks in the middle of the desert.

One more thing: My column did not say that Apple Computer (AAPL) was a better stock than Sirius. It said that the companies represented two different successful paradigms: One in which users select and download music to listen to, and the other in which users enjoy it passively without commercial interruption.

This year, I pointed out, the stock representing active choice was beating the stock representing couch potatoes. Next year could be different. In fact, it wouldn't shock me to see Apple gobbled up at a premium before long by a larger company like Sony (SNE) or Philips Electronics (PHG).

Personally, I prefer a third path for music -- a blend of the two. I subscribe to -- and constantly use -- Rhapsody.com and Napster, which are online services of RealNetworks (RNWK) and Roxio (ROXI), respectively.

RealNetworks hasn't received much credit for Rhapsody, but it is a fantastic service that charges $10 per month for access to about 750,000 songs. Why buy another CD or download anything when you can listen to the entire backlist of U2, Eminem, Yo La Tengo, Wilco, Johnny Cash, Tupac Shakur, Death Cab for Cutie -- just about whatever you like -- at will via your computer? Through a little switch, you can play all this music through the stereo system in your living room. There's no car radio option. But because I commute two miles to work on a motorcycle, that's no big deal anyway.

At the end of the day, all of us want both convenience and choice in our music. That's common ground. In our stocks, however, outside of the fun and profit of pure speculation on a momentum run, we should also want a foundation of value. And until Sirius can come up with a factory-installation deal with Ford (F), as explained in my prior report, it's lacking.