Does XM Need $600 Million To Reach Breakeven?
XM Radio, the U.S. satellite radio operator, reported revenues of $3.8 million in its second quarter results. It also had an EBITDA loss of $79.3 million for the quarter.
XM Radio has 136,718 subscribers and hopes to hit the 350,000 mark by year-end. The company added 60,000 subscribers in the second quarter.
William Kidd, a satellite equity analyst at Lehman Brothers, said in a research note: “We continue to believe that satellite radio is a valuable product and that the companies within the sector, like XM Radio, hold promise. XM Radio has done a good job so far of hitting milestones and finding demand. However, the expectations get heftier with each passing quarter, which always leaves open the door for potential disappointment.”
The numbers are encouraging, but XM Radio will need extra funding in order to breakeven. The company is fully funded until the first quarter of 2003, but is already looking at financial options beyond this date. While the business model shows promise, the funding issue is critical for XM.
Armand Musey, a satellite equity analyst at Salomon Smith Barney, said in a research note: “We believe that there is a risk that market acceptance of satellite radio [will] be lower than currently anticipated. Second, we believe that XM Radio faces significant financing risk, given that we project that XM Radio will require at least $600 million in additional funding before it reaches cash flow breakeven, which we do not believe will happen until at late 2004.”