XM Outperforms Expectations

Washington, D.C.-based XM Satellite Radio [XMSR] achieved better than expected third quarter results. XM was able to hold its operating costs in check, unlike its New York City-based rival Sirius Satellite Radio [SIRI], which has committed to pay more than $720 million in programming costs in recent months to obtain the rights to National Football League games starting this fall and shock jock Howard Stern beginning in 2006. Industry-leading XM had a number of expense items that were better than expected, including advertising and marketing, according to a research note by Alden Mahabir, a satellite analyst with New York-based Vintage Research.

In third quarter 2004, XM reported revenues of $65.3 million, an operating loss of $100.6 million and a loss in earnings per share (EPS) 59 cents. The company beat the consensus expected loss of 65 cents a share.

In addition, XM looked good by reporting lower than expected cost per gross addition (CPGA). That performance makes the previously reported subscriber numbers look even better, Mahabir wrote. Some observers may have been a bit disappointed when XM pre-announced its 416,000 third-quarter net new subscriber numbers in early October but the company’s third- quarter 2004 CPGA of just $89, compared with $101 in second- quarter 2004, is impressive, he added.

“One can only guess that the company could have done even better if it had spent more on advertising,” Mahabir concluded.

(Alden Mahabir, Vintage Research, 646/472-5216)