It's a whole new world for Sirius XM Radio (NASDAQ:SIRI).

Last night, the satellite-radio juggernaut posted its first quarterly report since the merger between Sirius and XM was completed. The results were generally solid. Revenue on a combined basis grew by 16% to $613 million, powered by a 17% year-over-year spurt in subscribers.

The good
The news gets better on the way to the bottom line, where the pro forma operating loss improved by 64%. Slashing operating expenses, particularly in marketing and corporate overhead, helped offset increases in programming-related costs.

Sirius XM ended up posting a pro forma loss of $0.09 a share, before a whopping $4.8 billion asset-impairment charge to write down the goodwill value of gobbling up XM. It's been a long way down since Sirius and XM got engaged in February of 2007. The 17-month delay in getting the deal approved took its toll.

According to CEO Mel Karmazin, the company is now "very close to breakeven" on an operating basis.

The bad
This doesn't mean it's all peaches and cream -- or even Peaches & Herb -- at the company.

The company added just 344,100 net new subscribers, to close out the period with 18.9 million members. Remember when that was how many new users each satellite-radio provider was landing on its own? Things will only get worse, with the company projecting to close out the current holiday quarter with just 200,000 more subscribers than it started.

Another scary metric is the languishing conversion rate. Sirius XM held its own by keeping the monthly churn of self-pay accounts at a steady 1.7%, but the conversion rate of trial users has fallen from 50.7% to 47% over the past year. In other words, just 47% of new-car buyers are electing to keep paying for the service after their free trials run out.

This trend has Karmazin discussing the possibilities of pumping some form of free content into deactivated receivers. Obviously, there couldn't be too much to offer, or else it would dissuade active subscribers.

It also won't hurt if Sirius XM is able to beef up its advertising efforts. Then again, that's another rub. Despite claiming nearly 3 million more subscribers than at this point a year ago, the company generated lower net advertising revenue. How can this be? Karmazin is a radio guy, having cut his teeth at Viacom (NYSE:VIA) when it was a terrestrial titan. With royalty rates climbing on the commercial-free music side, Sirius XM needs to milk more ad revenue out of its other channels.

The hazy
With $2.8 billion in long-term debt, and another $573 million due to be repaid in the near term, Sirius XM has little margin for error. It doesn't help that two of its biggest automaker partners, General Motors (NYSE:GM) and Ford (NYSE:F), are also in dire straits.

This is where investors need to tread carefully in banking on the company's projections. Sirius XM expects to land 1.5 million net new subscribers next year, even though the trend in this dicey economy over the past few quarters has been toward decelerating subscriber growth.

The company is also targeting $2.7 billion in revenue next year, the same figure it was projecting before it slashed next year's subscriber target from 21.5 billion to 20.6 billion. I called the company out last week on its math, and it now seems even more hard to swallow, since the average revenue per user has dropped from $10.75 to $10.47 over the past year.

Subscription services tend to inch higher over time. Couch potatoes know it, given the perpetually growing rates of satellite-television provider DirecTV (NASDAQ:DTV) and cable-programming heavyweight Comcast (NASDAQ:CMCSA). But the rules are different in the lower-priced subscription services. Both Sirius XM and Netflix (NASDAQ:NFLX) are seeing average rates creep lower over the past year.

So why is Sirius XM expecting to milk more out of less over the next year? If subscriber growth, ad revenue, and revenue per user are all heading the other way, is this a legit projection, or is the company simply saying what its creditors want to hear?

We'll know more in three months, when the company has a full quarter of seeing whether its members are upgrading to the "Best of Both" program for $4 more a month or downgrading to half-priced a la carte offerings.

It's going to feel like an eternity between now and then.

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