Sirius XM Radio (Nasdaq: SIRI) has beaten Netflix (Nasdaq: NFLX) to 20 million subscribers -- but only by a few weeks.

Netflix surprised investors with a better-than-expected quarter last night. Among the report's real gems, the rental site now has 20.01 million subscribers.

"Been there, done that," Sirius XM can say. It announced that it would clear 20 million net subs during the final week of November. Its guidance back then called for "approximately" 20.1 million radio buffs on its rolls by year's end.

Sirius XM has erred on the conservative side in recent projections, so don't be surprised if the satellite radio giant lands closer to 20.2 million, or perhaps even 20.3 million, year-end subscribers when it reports in a few weeks.

Sirius XM clearly closed out 2010 with a larger base than Netflix. It's not regressing, that's for sure. However, where would your money be, if you had to bet on which company had more subscribers right now?

"We have added the last 10 million subscribers faster than the first 10 million," Sirius XM CEO Mel Karmazin said when Sirius XM hit its mighty milestone. That implies accelerating growth at Siriius, but Netflix is the real speed demon here. Just look at its last two years of subscriber acquisitions:

Time Period


Growth (YOY)

Q4 2008 9.39 million 26%
Q1 2009 10.31 million 25%
Q2 2009 10.60 million 26%
Q3 2009 11.11 million 28%
Q4 2009 12.27 million 31%
Q1 2010 13.97 million 35%
Q2 2010 15.00 million 42%
Q3 2010 16.93 million 52%
Q4 2010 20.01 million 63%

Source: Netflix.

Year-over-year subscriber growth has accelerated for seven consecutive quarters at Netflix. By comparison, even the otherwise industrious Sirius XM looks like a slacker. It had 17.3 million subscribers by the end of 2007. That means Netflix has tacked on more net new subscribers over the past three months than Sirius XM has over the past three years!

What's your point, Rick?
This isn't necessarily a race, and there doesn't have to be a loser here. Both stocks more than doubled last year, and I can easily see both companies beating the market this year, too.

However, Sirius XM has made it an issue of its growth-stock status. In its investor conference presentations, Karmazin likes to point out how Sirius XM trails only Comcast (Nasdaq: CMCSA) and its 22.9 million video customers among this country's premium entertainment subscriptions. Given the problematic cord-cutting taking place at cable providers, the assumption is that it won't be long before a growing Sirius XM passes Comcast to claim the top of the heap.

Unfortunately, while it could still pass Comcast, Sirius XM probably won't get to enjoy top-dog status. Netflix was a distant fourth at the end of the third quarter with its 16.9 million users, trailing Comcast, Sirius XM, and DirecTV (Nasdaq: DTV). By the end of this quarter, Netflix is practically a lock to pass Sirius XM. By the end of the year, it will be a shock if Comcast isn't fading in its rearview mirror.

Netflix's guidance last night calls for closing out the current quarter with between 21.9 million and 22.8 million subscribers. Sirius XM's model isn't built for that kind of octane. At the high end of its range, Netflix may even blow past a fading Comcast's video customer count by March.

In short, I wouldn't be surprised if Sirius XM drops this slide from its presentations.  

Brothers from a different mother
Sirius XM and Netflix have more in common than you may think. They both command roughly $10 billion in market capitalization (after considering preferred stakes), though Netflix's relatively clean balance sheet and Sirius XM's $3 billion in debt create a wider disparity when it comes to enterprise value.

Netflix may score points for its consistent profitability over the years, but valuation buffs can't ignore Sirius XM's $8 billion in tax-loss carryforwards now that it, too, is in the black. The tax savings alone on future Sirius XM profits evens up the enterprise valuation gap between the two companies.

So where do we go from here?

Netflix has been nibbling away at its shares outstanding through timely buybacks. Meanwhile, Sirius XM's count continues to grow; its fully diluted shares now top 6.4 billion, since the company's profitability brings Liberty Capital's (Nasdaq: LCAPA) 40% preferred share stake in Sirius XM onto the income statement. Netflix wins the dilution round, but we still have more ground to cover.

There's plenty of back-and-forth at this point. Sirius XM generates more revenue, though Netflix's chunkier margins deliver greater earnings. Netflix checks in with a much lower subscriber acquisition cost, though Sirius XM has a sharply lower monthly churn rate.

In the end, one can't help admiring both companies as cynic-defying winners. Both disrupted moribund industries. Netflix breathed new life into DVD rentals, and it's now redefining home theater experience. Sirius XM reinvented the dashboard experience in a way that has been financially lucrative to its automaker partners.

Tomorrow's perspective
I recently pondered what Netflix and Sirius XM might look like in three years. My view of 2014 is unashamedly optimistic, but skeptics disagree. They see Netflix and Sirius XM linked to transitory technologies. They believe that Netflix's undeniable lead in streaming won't matter when studios and cable channels begin dealing directly with couch potatoes. They feel that Sirius XM will be hard pressed to compete as a premium service, as in-car connectivity opens up the gamut of free and ad-supported interactive entertainment on the road.

I'll believe it when I see it. You can't ignore 20 million paying customers -- and counting. It also only helps that the two companies are embracing the technologies that bears feel will ultimately upend them. Sirius XM is available as a streaming service through all three leading smartphone platforms. Netflix is inking streaming deals with studios. They both understand the importance of remaining relevant, and they've both already toppled dinosaur industries that didn't grasp that concept.  

I'm betting that Netflix will just barely pass Sirius XM this month in terms of susbcribers. Comcast will be toast in two months. We'll have to wait another three months for those report cards, but shareholders in these growing companies probably won't mind being patient.