Friday, July 28, 2006

Wall Street Journal Comments On XMSR Earnings

XM Loss Widens,And User OutlookIs Lowered Again
By SARAH MCBRIDEJuly 28, 2006; Page A12, WSJ (Link: HERE)

XM Satellite Radio Holdings Inc. posted a wider second-quarter loss and again cut its subscriber estimate for the year.
The subscription radio service reported a net loss of $231.7 million, or 87 cents a share, compared with a loss of $148.8 million, or 70 cents a share, a year earlier. The latest loss included $105 million in charges, largely from debt restructuring. Revenue grew 82% to $227.9 million from $125.4 million.
The Washington, D.C., company slashed its subscriber estimate to a year-end total of 7.7 million from 8.2 million. At the start of the year, XM forecast nine million subscribers; in May it cut that estimate to 8.5 million.
The company blamed a weaker overall retail environment along with problems with its popular "plug-and-play" units. Because of a Federal Communications Commission investigation into how those radios transmit programming to car stereos, the company has had to pull many of them from store shelves. Sirius Satellite Radio Inc., the company's competitor, has been trouncing XM in that retail market.
XM Chief Executive Hugh Panero said on a conference call with analysts the retail sales are "unacceptable, and our focus and objective is to regain market share." One strategy, he said, is to heavily promote a new show with Oprah Winfrey, who is scheduled to begin an exclusive radio program on XM in September.
XM's share price rose 53 cents, or 5.1%, to $10.89 as of 4 p.m. in Nasdaq Stock Market composite trading. Analysts said the stock gained because of a sense the company had announced all of its bad news, and short sellers were covering their positions.
Lower subscriber numbers may affect one of the company's biggest goals for the year: reaching break-even cash flow from operations in the fourth quarter. While he still expects to meet that goal, "our ability to do so becomes very challenging on the lower end of the subscriber range," Mr. Panero said on the call.
The company said churn -- the share of customers who don't renew with XM -- rose to 1.83% from 1.42% at the end of the same quarter a year earlier.
Company officials said the percentage of people who activate XM subscriptions after buying a new car fell slightly, to 54.5% from 57.6%, and would decline further in the third quarter. The company said one of its radio manufacturers had accidentally turned off the free trial subscriptions, typically three months, that the company uses to hook car buyers on XM, but said the manufacturer had now fixed the problem. It didn't disclose the manufacturer or affected car brands.

7/28/2006 09:11:00 AM

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