MarketWatch Summarizes Q2 Subscriber Numbers

XM disappoints; Sirius outperforms
Race for subscribers to satellite radio tightens up
By David B. Wilkerson, MarketWatch
Last Update: 10:39 AM ET Jul 6, 2006
CHICAGO (MarketWatch) --

XM Satellite Radio on Thursday reported second-quarter subscriber numbers that came in below expectations that analysts had already scaled back, while rival Sirius Satellite Radio posted net additions that outpaced forecasts. XMSR said it added 398,000 new net subscribers during the latest quarter, giving it a base of 6.89 million as of June 30. In May, the company had cut its 2006 subscriber forecast to 8.5 million from 9 million, citing "overall softness" in retail sales of its radio products during the second quarter.

"As we previously indicated, subscriber growth in the second quarter was limited by product availability and overall softness in the retail channel," said Hugh Panero, chief executive of Washington-based XM, in a statement. Most analysts had been looking for XM to add about 430,000 subscribers in the quarter, compared with the year-ago figure of 647,000, according to Oppenheimer & Co.'s Thomas Eagan.

David Kestenbaum, analyst at Morgan Joseph & Co., had been expecting XM to pick up 501,000 new customers and called the company's actual net additions "disappointing." Jason Helfstein at CIBC World Markets had been anticipating net additions of 401 million. "Also note worthy was the company's reluctance to reiterate its belief that it would reach the year-end sub guidance of 8.5 million," Kestenbaum told clients, adding that he is concerned that XM will reduce that 2006 estimate when it reports second-quarter financial results on July 27. Eagan said he doesn't expect subscriber additions to rise substantially in the third quarter, partly because General Motors (GM), which makes XM radios available in many of its vehicles, indicated that third-quarter auto sales would be lower than those of a year ago.

Sirius (SIRI ) , meanwhile, added 600,460 net subscribers during the second quarter, finishing the period with 4.68 million. The total represents a 158% improvement in subscribers over the same quarter a year ago.

Helfstein had been expecting customer additions of 561,000, while Stifel Nicolaus & Co. analyst Kit Spring had forecast signups of 550,000, an estimate he characterized as "roughly in line" with consensus estimates. Spring also reiterated his buy rating on Sirius, ascribing the company's outperformance to better-than-expected activations of factory-installed radios in vehicles. Sirius radios are offered in cars and trucks from such manufacturers as Ford (F), DaimlerChrysler (DCX), Toyota (TM), Nissan (NSANY) and Volkswagen.

Oppenheimer's Eagan said he prefers Sirius shares over XM because, in his view, Sirius management, led by Chief Executive Mel Karmazin, has "shown its ability to more strategically negotiate industry obstacles and is less likely to disappoint shareholders with guidance reduction."

XM's shares were down 1% at $14.35, while Sirius rose 3.1% to $4.62.

7/06/2006 12:09:00 PM

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