Sirius Narrows Loss, Misses Revenue Target

Updated from 8:41 a.m. EST

Sirius Satellite Radio (SIRI) posted a narrower-than-expected fourth-quarter loss Tuesday, but the stock was little changed after the company missed analysts' revenue targets.

The New York-based satellite-radio operator reported a loss of $166.2 million, or 11 cents a share, in the fourth quarter, compared with a year-ago loss of $245.6 million, or 17 cents a share. Total revenue rose to $249.8 million, up 29% from the same quarter a year earlier.

Analysts were expecting a loss of 13 cents a share on revenue of $267.4 million, according to Thomson Financial. The stock was lower by 5 cents, or 1.6%, at $2.99.

The company said it would not provide guidance for 2008 until after the merger with XM Satellite Radio (XMSR) is cleared by the government, something analysts and shareholders have been anxiously awaiting.

"The pending merger with XM will offer unprecedented choice for consumers and create tremendous value for stockholders," said Sirius CEO Mel Karmazin, in a statement. "We have made a very strong case for the merger to the government, received broad support from leading organizations and prominent individuals, and we look forward to a fast positive ruling from the government."

XM, which will be out with its own quarterly results on Thursday, was trading down 1.8% in sympathy.

Stifel Nicolaus analyst Kit Spring said that the pending merger with XM remains the key to Sirius's near-term performance. He adds that risks to Sirius are "overall economic weakness, continuing deterioration in the retail channel, weak car sales [and the] inability to obtain sufficient financing."

Sirius said it ended 2007 with 8.3 million subscribers, a 38% increase from the end of 2006. During the fourth quarter, the company added 654,309 net subscribers, giving Sirius a 68% share of aftermarket satellite-radio sales, its highest ever share according to the NPD Group.

For the year, Sirius reported a net loss of $565.3 million, or 39 cents a share, compared with a loss of $1.1 billion, or 79 cents a share, in 2006. Revenue jumped 45% from a year ago to $922.1 million.

On the retail side, the company's subscriber count rose to 4.64 million last year, an increase of 15% from the previous year. Original-equipment manufacturer, or OEM, subscribers for 2007 surged 87% from a year ago to 3.66 million, thanks to extended exclusive agreements with Ford (F) and Chrysler.

Spring notes that average monthly revenue per subscriber, or ARPU, was $10.05 in the fourth quarter, well below his estimate of $10.61. He says the lower-than-expected ARPU reflects the impact of rebates.

A rising quarterly churn rate -- the number of subscribers that quit the service - also concerns analysts. For the fourth quarter, average monthly churn was 1.7%. One positive sign was that the average monthly churn rate for the year was unchanged from 2006 at 1.6%, coming in slightly below forecasts.

Karmazin said during the company's conference call that Sirius has prepared to go forward on its own should the Justice Department and the Federal Communications Commission rule against the XM merger.

"Sirius is well-positioned, whether we combine with XM or continue as a stand-alone company," said Karmazin. "The goal for Sirius is positive free cash flow, [earnings before the deduction of interest, taxes and amortization expenses], and earnings, whether we merge or not."

Also on the positive side, the average cost per gross subscriber addition fell to $90 in the fourth quarter from $103 a year ago.

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