Sirius Earnings Preview By Associated Press
July 31, 2006, 2:33PM
Earnings Preview: Sirius Satellite Radio© 2006 The Associated Press
NEW YORK — Sirius Satellite Radio Inc. reports second-quarter earnings Tuesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: With 4.7 million subscribers at the end of June, New York-based Sirius is the second-largest operator in the burgeoning satellite radio sector, trailing XM Satellite Radio Holdings Inc.'s 6.9 million.
The company, which generates revenue from flat-rate monthly subscription charges, closed the gap on XM in the second quarter, growing at nearly twice the rate of its larger competitor. Sirius added 600,460 subscribers _ beating analyst expectations for 555,000 _ while XM added a net 398,000.
The results come after Sirius, in May, backed projections for more than 6.2 million subscribers by the end of 2006, which would be an increase of 87 percent from 2005.
Analysts expect a sharp increase in revenue thanks to the subscriber growth, but they will also be watching to see how much money the company spent to get each new listener, which are costs that have kept Sirius in the red.
Much of the company's recent success has been credited to shock jock Howard Stern, who left free radio to join Sirius in January. The company also gets a boost from deals with carmakers to have its radios installed as a standard or optional feature. In April, Sirius signed a deal with Korean carmaker Kia, adding to its pacts with Volkswagen, BMW, Ford and Daimler Chrysler. XM has inked contracts with General Motors, Honda, Toyota, Hyundai and Nissan.
Both companies, however, have run into regulatory problems with some radio models designed to operate with standard FM car radios. XM stopped making and shipping certain models, but Sirius said it has taken steps to correct any issues, and that units currently under production comply with Federal Communication Commission standards.
However, the company also said it found in an internal review that some of its staff had asked manufacturers to make radio units that didn't comply with FCC rules.
In programming news, Sirius signed up Mark Cuban, the founder of Broadcast.com and owner of the Dallas Mavericks professional basketball team, and conservative political commentator Bill Bennett to host separate shows. The company also said it plans to start a channel of Catholic-themed programming with the Archdiocese of New York.
Variety and Sirius also reached a deal to do regular radio news reports on the entertainment industry from the magazine's offices in Los Angeles.
Sirius also hired Loral Space & Communications to design a new satellite that would improve reception. The bird is expected to cost $260 million and be delivered in 2008.
BY THE NUMBERS: Wall Street is expecting the company to post a loss of 15 cents per share, according to a Thomson Financial poll of 29 analysts, which would be wider than the 13-cent loss from a year ago. Analysts expect revenue to nearly triple to $147 million.
ANALYST TAKE: Merrill Lynch analyst Laraine Mancini reiterated her "Buy" rating on the stock after Sirius announced its blowout second-quarter subscriber numbers.
"In our view, SIRI will continue to benefit in the retail market given its marquee content platform that attracts retail consumers that have a choice of service," she wrote.
WHAT'S AHEAD: Sirius subscriber growth has been fueled by the "Howard effect," so analysts will be watching to see how long Stern's impact will last.
Sirius could get a boost in late summer when it rolls out its package of National Football League broadcasts, but the final word on the FCC compliance problems is still in the air.
Analysts are also likely to ask about comments made in late June by Mel Karmazin, CEO of Sirius, who said he would be interested in Sirius buying XM at the right price but acknowledged that regulatory issues "would be a question mark."
STOCK PERFORMANCE: Sirius shares slid 6.3 percent in the period to finish June at $4.75. Its stock is down 38.2 percent year-to-date and hit its 52-week low of $3.60 in May.
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