Shares of Sirius XM Radio (Nasdaq: SIRI) have been a bit of a heartbreaker since hitting a two-year high of $1.88 on Valentine's Day.

The satellite radio giant posted a solid quarterly report the next day, but the momentum that seemed destined to take the stock to $2 -- and beyond -- fizzled. Wunderlich Securities downgraded the stock last week, lowering its target from $2 to $1.65.

So that's it? The party's over?

Not really. There are several potential catalysts that could get shares of Sirius XM over the $2 hump for the first time since the summer of 2008. Let's go over a few of them. They don't all have to happen, but a few of these events in concert can only help.

1. Organic ARPU growth materializes
Sirius XM isn't growing as quickly as bulls might think. More than half of last year's 14% spike in revenue growth resulted from the $1.98 monthly music royalty fee that went into effect in the latter half of 2009. Take out the difference between the $234 million in royalties collected in 2010 and the $49 million it took in through all of 2009, and Sirius XM's revenue would have grown by a mere 6% last year.

Now that all three of the Sirius XM rate hikes incorporated in 2009 have been in the system for a year, CEO Mel Karmazin will have to earn further growth in average revenue per user (ARPU).

Music royalties and a welcome uptick in ad revenue helped move monthly ARPU from $10.95 to $11.73 last year, but subscriber revenue per user grew by less than 1%.

Thankfully, this is a bullish article. There are several realistic ways for Sirius XM to milk more money out of its subscribers without alienating them.

  • A regulator-mandated freeze on primary rates should expire this summer. In other words, Sirius XM will have the freedom to tweak its basic $12.95-a-month rate. It may not jump on this right away, especially if the NFL lockout diminishes the value of XM's gridiron deal, but at least the perceived flexibility is there. Netflix (Nasdaq: NFLX) shares soared when it introduced its first rate hike in years back in November. Despite the fears of an uptick in churn, the same market reaction would likely greet Sirius XM.
  • Streaming isn't a strong sell as a stand-alone offering at $12.95 a month, but it makes a lot more sense as a $2.99 add-on for receiver-based Sirius subscribers now that Howard Stern is available through the smartphone app. Stern's five-year extension should also help on the XM side in moving the "best of" monthly plans for $4.04 more.
  • Despite the obvious allure of Sirius XM's well-to-do audience of active commuters, advertising revenue slumped through the recession in 2008 and 2009. It bounced back nicely in 2010, and that growth should continue in an expanding economy in 2011. Advertising may never be a material driver for Sirius XM, given the magnetism of its commercial-free music channels, but it's one more way for ARPU to inch higher this year.

2. Sirius XM 2.0 is a hit
The next evolutionary step in satellite radio will hit the market during the fourth quarter.

We don't know everything about Sirius XM 2.0. The hints that have been dropped position the new receivers as more interactive, with broader programming options. Since older receivers are unlikely to play along, we may be looking at a healthy upgrade cycle on the automotive side, and the first uptick in years on the retail side.

Sirius XM has to stay ahead of the pack, and that includes its partner automakers. Ford (NYSE: F) is turning heads with MyFord Touch's seamless connectivity to audio entertainment for smartphone owners. Toyota (NYSE: TM) introduced Entune this year, raising the bar with complimentary navigation through Microsoft's Bing and the ability to make restaurant reservations through OpenTable.

In short, Bluetooth-capable smartphones and innovative car companies are redefining the dashboard experience. Sirius XM can't be left behind, even if it has managed to post sequential subscriber growth for six straight quarters.

Sirius XM 2.0 can be that game-changer, but it will have to markedly improve upon the ear candy that automakers are rolling out now. Car manufacturers are improving Web-based functionality in cars because drivers covet those high-tech features. But automakers also rely on Sirius XM for juicy bounties on activated subscriptions.

We'll know more as Sirius XM 2.0 details begin to bubble up over the next few months.

3. Raise the bar
Analysts are eyeing modest growth here. They see revenue climbing just 8% this year, and 10% come 2012. The pros see a profit of $0.03 a share in 2011 and $0.05 a share next year.

Given the slow growth outside of the 2009 rate hikes, these may seem like aggressive milestones. They're not. Auto sales -- the lifeblood of satellite radio -- are holding up well. Escalating fuel prices are driving new vehicle purchases. Ford just posted a 16% year-over-year spike in sales for the month of March. We'll eventually get to the point where drivers are simply swapping older cars with Sirius or XM receivers for similarly equipped new ones, but we're not there yet. For now, Sirius XM is at the mercy of new car sales, and that's not a bad place to be.

Sirius XM has already realized most of the merger synergies, but this remains a scalable model where net margins can continue to improve as long as incremental subscribers keep coming. It's hard to move the needle on the bottom line with 6.4 billion fully diluted shares outstanding, but what if Sirius XM can be more profitable than Wall Street is currently projecting?

Even if it's just a matter of earning $0.08 a share next year instead of the nickel being targeted, that would price Sirius XM at roughly 20 times next year's earnings. The stock's appeal would grow beyond its current base of investors and speculators. What happens at $0.10 a share? What happens at $0.12 a share?

We may be dabbling in the hypothetical, but a lot of the potential catalysts that I singled out earlier could deliver real improvement to Sirius XM as we know it.

The $2 price may not be as close as it was two months ago, but it's not out of reach, if things play out the way they should.

When do you think Sirius XM will hit $2? Share your thoughts in the comment box below, and I'll revisit this article to crown the victor if or when it happens.