Posting a wider loss isn't always the end of the world. In the case of Sirius (NASDAQ:SIRI), you can see the legitimate strides the satellite radio provider has taken so far in 2006 despite its first-quarter loss.

Thanks to the arrival of Howard Stern on the Sirius airwaves back in January, radio fans have ditched their free terrestrial receivers in favor of Sirius in record numbers over the past two quarters. And it's looking to expand on its Stern franchise by letting subscribers stream his unshackled morning show online starting next month.

The company closed out the quarter with 4.1 million subscribers. That's a 149% net improvement from where the company was a year ago, and it translated into a 193% surge in revenue to $126.7 million for the period ending in March.

The favorable momentum now has the company forecasting that it will close out the year with 6.2 million subscribers. Until this morning, the company's year-end target had been to hit only 6 million.

Even though shares are trading at a far cry from their December 2004 peak of $9.43, the fundamentals continue to improve for Sirius. Just as importantly, the company continues to close the subscriber gap with rival XM Satellite Radio (NASDAQ:XMSR). During the first quarter, Sirius landed 149% more subscribers than it had acquired in the same period last year, while XM managed to close out the same quarter with just a 5% subscriber increase.

The real test for both companies will come now. XM, with 6.5 million subscribers, still expects to close out the year with 9 million customers, and the projections from both companies show XM regaining the lead in new-subscriber acquisitions for the balance of the year. But the one potential disruptor is if Stern is able to recruit new listeners from the terrestrial audience. And that means there may never be a more significant quarter than the one we're knee-deep in right now in determining whether XM or Sirius is the true king of satellite radio.

In all likelihood, both companies will thrive in the years to come with significant chunks of the market. They both expect to be free cash flow positive by the end of this year.

Sirius, for its part, expects its free cash flow to top the $1 billion mark by 2010. That contrasts nicely with a Barron's report earlier this year that said J.P. Morgan analyst Barton Crockett was projecting just $622 million in free cash flow for the company by that date. Sirius also expects 2010 revenue to clock in at $3 billion, whereas Crockett pitched his tent at the $2.4 billion mark.

Even though the two key players in this promising duopoly are trading at nearly half of the all-time highs that they set over the 2004 holidays, there are exciting things happening here. That's what led Motley Fool Rule Breakers to recommend XM to its subscribers last year.

Did I mention that Sirius lost $136.7 million this past quarter before depreciation and stock-based costs, and how that compares with the $127.1 million it lost a year earlier on that basis? Well, I didn't until just now, but it's not a matter of burying the lead. It's more like digging up the hidden treasure instead.

To learn more about satellite radio and the other industries where Rick, David Gardner, and the rest of the Rule Breakers team have unearthed market-crushing picks, consider a free30-day trial subscriptionto see whether the ultimate growth stock newsletter will jam with your portfolio.

Rick is a fan of satellite radio and has been a Sirius subscriber since 2004. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.