Thursday, October 05, 2006

More Analyst Comments On Q3 (Don't Throw The Baby Out With The Bath Water)

October 5, 2006

In essence, XMSR DID disappoint, and SIRI DID NOT, so don't throw the baby out with the bath water!

Citigroup, Oct. 4, 2006, Broadcasting, Eileen Furukawa (courtesy of an SSG reader, Thanks)

OPINION: IN LINE 3Q06 SUBS: Sirius reported 3Q06 subscribers this morning. The company reported 441K net subscriber additions versus Consensus expectations which werein the low to mid 400Ks. This represents a healthy 23% Y/Y increase in net adds and stands in contrast to XM's slight 3Q subscriber miss which showed a(54%) Y/Y decrease in net adds. Year-end guidance intact, which we view as positive.

Further, Sirius reiterated its target of 6.3 million subscribers by 2006 year end. We believe this reiteration of guidance is a key positive in the face of continued weakness in the retail channel for the industry as a whole, as well as continued skepticism surrounding the OEM channel due to the current struggles felt by U.S. automakers. However, while auto makers remain weak, we believe the increases in penetration by satellite radio will more than offset this weakness leading to continued Y/Y growth in OEM net adds, which will help Sirius to reach its year end 2006 targets.

Sirius maintains lead over XM though we expect gap to narrow: Still, Sirius continues to maintain a market share edge over XM in retail. We estimate that Sirius had 53% retail share of gross subscriber additions during 3Q. This translated into a higher 70% estimated share of net retail subscriberadditions, with XM's higher overall subscriber base resulting in a higherabsolute number of retail subscribers churning off the service each month. While we estimate that Sirius will maintain its market share lead, we do expect this gap may narrow some as XM works its way through recent FCC (inventory) issues, and can better focus on marketing its product.

Bottome Line: 3Q06 subscribers were in line with Consensus (although a bit below our overly aggressive 3Q sub estimates). We continue to believe the on going ramp in OEM subs at Sirius should allow it to hit its 2006 year end subscriber target. We continue to like Sirius and believe that current weakness at Retailwill be more than made up for as Sirius' OEM channel continues to ramp in 2007 and 2008. We reiterate our Buy rating. Price Target $7.50

10/05/2006 08:01:00 AM

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