Shares of Sirius Satellite Radio (SIRI) and XM Satellite Radio (XMSR) are getting hammered after a Goldman Sachs analyst cut his price targets for both and argued that young people would really rather have an iPod or an iPhone.
Analyst Mark Wienkes dropped his price target 43% for XMSR from $11.50 to $6.50 and 32% for SIRI from $2.25 to $1.75. Sirius shares are down 13% in morning trading, to $2.12 a share; XM is down 17% to $8.54. Thanks to Goldman, both are trading at multi-year lows.
Sirius and XM’s 16-month wrangle with the Feds over their proposed merger has proven a nice distraction to the fundamentals of the satellite radio business. The stocks got a lift Monday after FCC chairman Kevin Martin recommended approval of SIRI’s buyout of XM. But both companies are facing declining growth and cash flows. Writes Wienke:
With core demand for satellite radio falling amongst the younger demographics, vs. rapid increases for MP3 players and other new technologies (3G iPhone streaming audio), and declining core ARPU, we see long-term risk to the outlook. Our analysis is based on continued retail channel weakness, 2H08 OEM production cuts, rising churn and our assumption that a’ la carte pricing will not materially impact demand.
Sounds right to us. As we argued on Monday, satellite radio is only going to find itself finding more and more competition — like AOL’s streaming radio app for the new iPhone.