Try Jim Cramer's Action Alerts PLUS
Scott Moritz
Return to Article

Results Are a Sirius Disappointment for Satellite Radio Fans

Scott Moritz

10/29/03 - 11:50 AM EST
Ill winds on Wall Street buffetted satellite radio player Sirius (SIRI Quote) Wednesday after the company posted a poor third-quarter performance.

Shares of the New York pay radio shop thrashed about as investors considered weaker-than-expected subscriber growth and sales numbers, along with oppressively high customer acquisition costs. Sirius shares, which have risen nearly sixfold over the last year as investors pile into its red-ink-stained growth story, were flat at $2.27 at midmorning in Nasdaq-leading volume of 75 million shares traded.

For its third quarter ended Sept. 30, Sirius posted a loss of $107 million, or 11 cents a share, on $4.3 million in revenue. That's about the same loss as in the second quarter on a near doubling in sales, and it compares with a year-ago loss of $119 million, or $1.56 a share, on sales of $17,000. Wall Street analysts had expected a loss of a dime on sales of $4.6 million.

Most startling to the company's many fans was a shortfall in Sirius' closely watched subscriber number, which is the favored barometer of investors trying to gauge the prospects of a service startup. Sirius added 44,000 subscribers during the quarter, for a total of about 150,000 subscribers, but observers had been looking for net additions of 60,000 or more.

By contrast, Sirius' sole rival, XM Satellite Radio (XMSR Quote), which is about a year ahead in its business plan, crossed the million-subscriber mark this week.

Sirius' paltry subscriber growth was even more disturbing in light of the company's high subscriber-acquisition costs. The company says it spent $522 for every subscriber it added last quarter. These costs typically cover subsidies for radios, sales incentives, installation costs and chips from its supplier, Agere (AGRa Quote).


Rocket-Fueled
Satellite radio rally


Analysts had expected the company to spend about half that much on subscriber acquisitions. They say Sirius management had guided for per-subscriber acquisition cost of around $150 by the end of the year. Bulls say Sirius' massive losses and early stumbles, including a recapitalization last spring that increased shares outstanding more than tenfold, will be forgiven if the company can show it is gaining subscriber growth momentum. Fans love the potential mass-market appeal of subscription radio service for cars and homes, and that concept has helped create a strong following for the stocks of the two satellite radio companies.

Both companies have teamed up with major automakers and electronics retailers in the past year, potentially opening up a sales opportunity beyond its cult following.

Wait till next year, says one hedge fund manager who is long Sirius. "The market wants them to grow a big business, and XM has proven this can be done."

But with quarterly losses outpacing sales by some 25 to 1, next year seems like a long way off.

Brokerage Partners