The bad news is that growth is projected to slow at Sirius XM Radio (NASDAQ:SIRI). The good news is that it's still growth, and improving cash flow growth to boot.

The satellite-radio giant today released financial projections for the next five years. Since the company is in talks with several financial institutions to refinance next year's costly debt repayments, it's giving everyone a glimpse of the company's internal growth projections between now and the end of 2013.




Free Cash Flow





















Subscribers in millions; dollars in billions.

Color by numbers
In the near term, the numbers may come as a disappointment. Two months ago, Sirius XM provided a merger update that called for it to close 2009 with 21.5 million subscribers. It may not seem like a big difference from the new 20.6-million-member mark, but it's huge when you factor in the 19.5 million year-end target for 2008 that has now been watered down to just 19.1 million subscribers. In a nutshell, two months of plummeting consumer confidence find the company scaling back its rolls by 400,000 this year and by another 500,000 next year.

The surprising math here is that despite the slowing subscriber growth, Sirius XM is sticking to its guidance of $0.3 billion in adjusted EBITDA and $2.7 billion in revenue. Holding firm to the cash flow figure is palatable, given the model's high subscriber acquisition costs. The $2.7 billion top-line goal is the trickier one to swallow. Is this simply a matter of rounding up now and rounding down two months ago, or does the company really think that its subscribers will be paying more next year?

Sirius XM launched two new pricing extremes last month. Subscribers can pay $4 more to receive a "Best of Both" package that offers members of one network access to some of the more popular channels from the other service. However, as promised to regulators, Sirius XM also rolled out a streamlined programming plan that is $6 less than the current $13-a-month offering. In these uncertain times, isn't it more likely that consumers will downgrade rather than upgrade?

You see it happening at Netflix (NASDAQ:NFLX), where the average film buff is paying the company $13.60 a month, rather than last year's average monthly ransom of $14.57.

Consumer-facing companies just aren't finding the kind of pricing elasticity they used to have. Blockbuster (NYSE:BBI) is testing lower rates on shorter DVD rentals. Casual-dining chains are putting out smaller-portioned meals at lower price points. Even Apple (NASDAQ:AAPL) has marked down its entry-level MacBooks. Photo-finishing specialist Shutterfly (NASDAQ:SFLY) is one of the few to buck the trend -- with an 11% spike in average order size this past quarter -- but that is the result of a product mix shift.

With XM starting out 2009 with 400,000 fewer subs than it projected two months ago -- and wrapping it up with 900,000 fewer subs -- how can it not take an eraser to its year-end revenue target? Is that enough to get an investor to question the rest of the math?

Let's hope not, since material growth where it matters most -- in free cash flow -- may be just the ticket to get creditors to hop on and save the company from drowning in bankruptcy court next year.

Over the valuation rainbow
Are shares of Sirius XM a good value right now? It's a question with a muddied answer. Until we get a handle on the kind of dilution that shareholders will face heading into the more than $1 billion in debt obligations due next year, it's a guess. The number of shares outstanding may increase, into the billions, if Sirius XM is able to swap out debt for equity at today's prices. So, as encouraging as it may seem to visualize what Sirius would be worth in five years if it's really raking in $1.4 billion in free cash flow on $4.1 billion in revenue come 2013, it's an incomplete valuation exercise. We know the numerator. The denominator is a mystery.

This doesn't mean that the projections are worthless. The stock has been beaten to a pulp lately, based on growing concerns that the company will have to file for bankruptcy to get over next year's refinancing hurdles. If credit markets ease up and the financial institutions are encouraged by the company's five-year roadmap, that becomes less of a concern, and shares will begin to appreciate. A higher share price will also make any dilution hit less painful.

So go ahead and cheer the growth -- any growth -- in this tricky environment. Sirius XM has proven this year that it can still grow, despite sharp sales declines at its biggest automotive partners in General Motors (NYSE:GM) and Ford (NYSE:F).

Retail weakness is likely to continue, but satellite radio hasn't been a force there in nearly two years.

As Sirius XM's projections show, the company has a plan for the future. If creditors agree, that future will also include its current shareholders.     

More news than static on Sirius XM:

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Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story, save for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.