Good News That XM Could Use
July 11, 2006
After a tough first half of the year that was filled mostly with bad news for XM Satellite Radio, there is a strong potential for brighter days ahead. This should be welcomed news to investors in the sector. Potential positive news items are:
1. The announcement of 7,000,000 subscribers. This news should be about a week away for XM, and the earlier it is delivered the better. A subscriber addition rate of 6,000 NET subs per day would give us the 7,000,000 milestone on July 18, and would show a nice improvement on the 4,374 posted in the second quarter. An addition rate of 5,000 per day would still show a nice improvement and would bring the announcement on July 21st. The key here is showing an improvement.
2. It would be very positive to see XM reiterate their subscriber guidance of 8,500,000 by year end sometime soon. Reiterating this, perhaps in conjunction with a 7,000,000 announcement might ease some concerns on the street.
3. The earnings report. Even though the subscriber number disappointed some, it can be offset by a more powerful metric in the financial status of the company. Good financial metrics will give people an understanding that the company is on a good financial path. Clear and concise discussion of the financial metrics will be seen as an overall positive and offer direction to investors.
4. A statement that FCC issues are resolved, and that inventory levels will be sufficient to meet demand as well as guidance.
5. An announcement regarding the FTC issues, and where that stands. At this point the company has likely already responded to the FTC complaints and addressed them. News that the issues are resolved and impact was minimized would bolster the other positive news.
6. Some news regarding the RIAA lawsuit. Perhaps even something as simple as where things stand would take some worry out of the equation. Are the parties negotiating, or is this headed to a courtroom. XM has done well to spell out their feelings, but it is still very unclear as to what a timetable is on the issue. Removal of question marks in the minds of investors would be positive.
7. XM has the Oprah Channel starting in September. Establish a date, and give people something to look forward to. Sirius and Howard Stern did very well by letting everyone know exactly when Howard was coming. XM should take a page from the Sirius playbook, and establish a date for Oprah and begin to market her and the debut.
There are also longer term issues that XM can give flavor on. A little bit more information on these longer term issues would help to settle down the street, and get investors focused on areas where there is good potential to see positive impacts. Longer term issues include:
1. An announcement relative to OEM partners. GM and Honda have given specific installation and penetration targets. XM should reiterate these. They should also add more specific details about Hyundai, Toyota and Nissan. Show the path that the OEM sector for XM is on.
2. Talk about the launch of XM 4. Explain the benefits it gives the XM constellation and discuss how it bolsters the service.
3. Talk about the financial metrics that have been achieved, and point out that goals are being set, are realistic, and there is a focus to achieving them. This will help bolster investor confidence. If XM still anticipates operational cash flow positive in the fourth quarter they should talk about it, and outline what it is that will get them there.
The last item involves some controversy, but does need to be discussed. Management credibility. Over the last 6 months XM's management has lost a lot of shine and luster. Deserved or not, this is the position the company is in right now. Building back credibility is a long process. Sometimes it requires a shake-up in management. The rebuilding of credibility of existing management will take quarters to happen. A shake-up in management could have instant impact. The problem right now is that there is no direction on the issue. If the board is standing whole heartedly behind current management, then they should come out and state that. If a shake-up is going to happen, it needs to happen prior to the big ramp-up for the fall/winter selling season. Either way, the current status seems to be a subject that is in limbo, and that can be a cause for the stock price to be in limbo as well.
As SSG discussed in a previous article, the third quarter is a very important quarter for XM. Net subscriber additions of 600,000 are pretty important to obtain, and investors need to get a feel for where those subscribers are going to come from. Of late XM has spoken a few times about a weakness at retail that they are experiencing. This leaves investors wondering where 200,000 more subscribers will come from in the third quarter. If XM has seen an uplift at retail they need to express that. If they will see a big boost from OEM they need to express it. At this point there are to many analysts projecting a miss of 8,500,000 by years end. XM needs to be concise in their guidance, and illustrate how they are going to get there.
There can be a lot of good news on the horizon for XM Satellite Radio. They need to begin to share it.
7/11/2006 10:19:00 AM
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