XM Satellite Radio Gains 10% on the Week

XM Satellite Radio (XMSR) continued to ride an updraft in market momentum, as investors cheered higher growth targets and expanded partnerships with automakers.

Shares of the Washington, D.C., pay radio service rose 63 cents, or 3%, to $22.33 in early trading Thursday. For the week, XM shares are up 10%, as Wall Street warms to the high-risk cash-burning growth story.

Despite the fact that the company said Thursday that it lost nearly five times more money than it brought in last quarter, investors were encouraged by the bold business outlook offered by executives on the follow-up earnings conference call. The company said it will beat expectations for 1.2 million subscribers by year end and have more than 2.5 million customers next year.

The executives also said Thursday that the company struck a new deal to have its radios installed in some Lexus cars, giving some analysts such as Bear Stearns' Bob Peck reason to speculate that more deals with Lexus parent Toyota may be in the works. XM also said Nissan's Infinity unit has agreed to offer factory or dealer installation on its cars.

For the third quarter ended Sept. 30, the subscription radio service posted a loss of $133 million, or $1.12 a share, against a year-ago loss of $110 million, or $1.26 a share. Revenue jumped to $26.9 million from just $5.6 million a year earlier and $18.3 million in the second quarter.

The widened losses were overshadowed by a surprising 47% sequential sales surge and lowered costs per subscriber acquisition.

The company added 237,395 users during the quarter, posting 34% sequential growth. The average cost of adding each new subscriber fell to $129 from $385 a year ago. That beat most analysts' expectations, which had the cost falling to about $150 per new user.

XM charges users around $10 a month for 100 channels of radio. Like rival Sirius Satellite Radio (SIRI), XM has signed partnerships with many of the big automakers. That has satellite radio bulls saying it's only a matter of time until the product becomes a mass-market standard.

Still, the companies are burning cash at a rapid rate and liquidity remains a potential concern down the road. For now, though, XM and Sirius have seen their shares rise strongly over the last year amid the market's general tech euphoria.

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