Friday, January 05, 2007

The SatRad Trader: Reaction To XM's Year End Subscriptions

XMSR clocked in with 7.6 million subscribers for 2006. Although this was below the publicly announced estimates of 7.7 to 7.9 million, after an initial 2% selloff, the stock recovered nicely today, currently up 3%. This marks a distinct sea-change in investor sentiment.

After speaking to several fund managers, here are some thoughts to explain this reaction:

Although XM had reduced their subscriber expectations several times in 2006, 7.6 million was in-line with the "whisper number" in circulation.

Weak XM subscriber numbers could accelerate interest in a merger with Sirius.

Both XM and Sirius announced significant milestones for the quarter, CFBE, ahead of expectations (the credibility of those journalists/bloggers who were spreading rumors of bankruptcy has just been quashed!)

The market perceives that the worst is behind them for both Sirius and XM. OEM installs are slated for a significant ramp up in 2007, and satellite radio is set to become "mainstream".

Investors are now looking at XM and Sirius as true "growth" stocks. After all, what other consumer electronics have had this penetration trajectory?