XM Posts Steep Loss

Costs of confronting Howard Stern mount.
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Updated from 7:25 a.m.

XM Satellite Radio

(XMSR)

plunged 9% early Thursday after a director quit the satellite radio broadcaster, warning that the company's cash burn raises "a significant chance of a crisis on the horizon."

Director Pierce J. Roberts Jr. quit in an email to the board after XM posted a deeper-than-expected fourth-quarter loss Thursday. The move came as a faceoff with archrival

Sirius

(SIRI) - Get Report

drove costs sharply higher.

The Washington, D.C., pay radio shop pledged to reach cash-flow breakeven in the fourth quarter and set its eyes on having 9 million subscribers by the end of 2006, up from 5.9 million at Dec. 31.

For the quarter ended Dec. 31, XM lost $268 million, or $1.22 a share, compared with the year-ago loss of $188 million, or 93 cents a share. Revenue rose to $177 million from $83 million a year earlier. Analysts surveyed by Thomson Financial were looking for a 92-cent loss on revenue of $174 million.

The steep fourth-quarter loss was attributable to heavy promotional spending in an effort to counteract Sirius' high-profile rollout of Howard Stern. XM said its closely watched cost per gross addition, a measure of how much the company spends to draw each new user, skyrocketed to $141 in the latest quarter from $104 a year earlier. Analysts were

looking for a number closer to $120.

Subscriber acquisition costs, another way of tracking the expenses tied to drawing new customers, rose to $89 in the latest quarter from $64 a year earlier.

XM's steep loss will only heighten anticipation among investors for Friday's earnings report from Sirius, which after lagging behind XM for several years on the subscriber front actually outpaced its older peer for the first time in the fourth quarter. Sirius is nonetheless expected to lose money by the bucketful as well.

XM said Thursday that "despite an intensely competitive marketplace in the fourth quarter, XM achieved net subscriber additions of 898,315. Later than expected activations from strong holiday sales brought the total to more than 6 million during the first week of January."

XM said it expects to see solid growth in the year ahead from auto partners.

General Motors

(GM) - Get Report

expects to produce 1.55 million XM-equipped vehicles during calendar 2006, up from 1.4 million in 2005.

Honda

(HMC) - Get Report

announced in the fourth quarter of 2005 that it plans to factory install 550,000 XM radios in model year 2006, up from 400,000 in model year 2005.

Toyota

(TM) - Get Report

will expand XM availability and will launch its first factory-installed program later in 2006.

"Most importantly, however, 2006 will be the staging year for more dramatic OEM growth in 2007, 2008 and beyond as Hyundai, Nissan and Toyota production expands," XM said. "Hyundai plans to offer XM as a standard feature in its vehicles, with installations starting at the end of 2006. Nissan plans to produce more than 500,000 vehicles with XM factory installed during model year 2008 and more than one million vehicles during model year 2010. XM's OEM leadership position has been secured for the long-term with the biggest and fastest growing car companies."