Sirius Reservations

However, Sirius reiterated its guidance on its latest earnings conference call, leading us to believe that heavy discounts in the radio service could be just around the corner. This would increasingly hurt profit margins and could cause further losses down the road.

On a fundamental basis, the company's sales have grown from $67 million in 2004 to $242 million in 2005 and have reached $277 million year to date. However, Sirius' operating expenses are roughly $1 billion annually, and it has not reported a single quarter of operating income or operating cash flow. Given that, investors must size up Sirius' growth prospects going forward -- and they don't look good.

The first hurdle is competition. XM Satellite(XMSR Quote), Sirius' chief rival, has more total subscriptions, as well as lower costs per subscriber because it uses smaller chips in its radio units. Also, consider that Apple(AAPL Quote) has stepped into the satellite radio auto market by signing deals with automakers to put iPods into cars. This could further cut into Sirius' subscriber growth going forward.

In addition, Howard Stern's five-year, $500 million deal -- which enkindled so much buzz for Sirius -- no longer looks like the kind of success story that the radio satellite company needs. Stern's ad sales are down, and his celebrity guest bookings are almost nonexistent, and traffic on his Web site is down as well. There have also been rumors in the media that Stern will return to FM radio (while continuing to work on satellite radio), which could cause some Sirius subscribers to defect back to traditional radio.