Satellite radio fans are bracing for a strong second half of the year from the extraterrestrial purveyors of music, news and talk.
XM Satellite Radio's
second-quarter subscriber gains have observers looking for a big performance over the next six months.
Both XM and sole rival
Sirius Satellite Radio
typically find that user growth accelerates as the year progresses. Apparently consumers look for a reason to sign up for $13-a-month pay radio service, and as recent history shows, the holiday gift season tends to provide the needed boost in spending.
Having gained 640,000 subscribers in the quarter ended June 30, XM has added about 1.2 million in total already this year. Now, XM watchers say adding another 1 million-plus is a layup.
"XM crushed the consensus number in the first quarter, and they blew it away in the second," says Sanders Morris Harris analyst Steve Mather. "XM will add well more than 2.5 million subscribers this year."
Mather rates XM a buy, citing better radios in the pipeline and strong holiday sales still ahead.
As for Sirius, which started a year later than XM, analysts are also predicting big numbers -- just north of 2.7 million total users by year-end for the New York-based shop.
Lately, investors could use some good news from XM and Sirius.
Both stocks are down about 10% from where they started the year as worries about
bulging satellite costs and
continued financing needs cloud the growth picture.
Behind the go-go growth for both companies is a fiery cash incinerator that gives some observers reason for concern. Last month, XM sold 9.7 million shares to raise $300 million needed for the construction and launch of two new satellites. The risk for investors is that the companies have yet to show much progress in the race to generate more cash than they burn.
Often likened to cable TV, satellite radio has caught on with investors who have been willing to ignore big costs and concentrate on the promise that premium radio service would catch on in the consumer mass market. But critics have long charged that the companies are risky investments requiring endless supplies of cash with no guarantee that the businesses can turn a profit.
Still, fans say there's minimal reason for worry as long as the growth prospects remain huge.
"I think in the latter half of the year we will see more new hardware announcements, factory installs and car companies making the services a standard feature on vehicles," says Hoefer & Arnett analyst April Horace, who has a buy rating on XM.