Sirius subscriber growth outpaces XM
Thu Jul 6, 2006 12:21 PM ET
By Kenneth Li
NEW YORK (Reuters) - Sirius Satellite Radio Inc. <SIRI.O> on Thursday posted stronger second quarter subscriber additions than larger rival XM Satellite Radio Holdings Inc. <XMSR.O>, sending Sirius' shares up 4 percent.
Sirius, boosted by an exclusive deal with shock jock radio personality Howard Stern, said it added about 600,640 net new subscribers in the quarter, a 64 percent growth from the same period last year. It ended the quarter with 4.7 million subscribers, still short of XM's nearly 7 million subscribers.
XM said it added 398,000 net new subscribers, a 38 percent drop in net subscriber growth compared to last year's period curbed by new product availability. XM shares were flat in Nasdaq trade after falling as much as 5 percent before the market opened.
Oppenheimer and Co. analyst Thomas Eagan said Sirius' business continued to benefit from the "Howard Stern-effect", with fans of the ribald talk show host flocking to the No. 2 satellite radio service.
On the other hand, XM's growth has been hurt by a delay in shipment of its new handheld digital music players with built-in satellite receivers.
But Sanford C. Bernstein analyst Craig Moffett offered a more complicated answer that explained XM's volatile stock price on Thursday morning.
He said the difference in net new subscriber growth was actually an "optical illusion" due to the difference in the sheer size of the two satellite radio operators.
With churn, or the rate of losing subscribers at an industry average of about 2.5 percent, Moffett said XM would naturally lose more customers every quarter since it has a larger subscriber base.
"By virtue of its smaller size, Sirius loses fewer customers ... each quarter," he said. "As a result, its share of net additions will always be higher than its share of gross additions, at least until it 'catches up' to XM in sheer size."
To make up the difference, "XM has to grow more aggressively," Oppenheimer's Eagan said.
He said the gap between the number of net new subscribers each company added was approximately equal to their difference in estimated churn for the quarter.
The two companies, which are expected to post net losses for the foreseeable future, are also hamstrung by high marketing and subscriber acquisition costs, analysts have said.
Sirius shares rose 13 cents, or 3 percent, to $4.61; XM shares lost 5 cents, or less than 1 percent, to $14.44 on the Nasdaq in late morning trading.
