Sirius Satellite Radio said Tuesday that it already has exceeded its goal of 3 million subscribers by year’s end, adding about 9,600 new subs each day in the current quarter, an analyst said.
Tuesday’s announcement helped shares of Sirius and its chief rival to buck a powerful downtrend Tuesday on Wall Street, where the Nasdaq and Dow Jones Industrial Average each dropped 1%, though Sirius shares were up 2.3% and XM Satellite Radio inched down slightly.
Sirius said that “it recently surpassed 3 million subscribers and expects a strong year-end.” Sirius said it closed out the third quarter with 2.17 million subs.
Competitor XM had 5.03 million subs at third quarter’s end and a spokesman Tuesday reiterated the company’s guidance for 6 million at year’s end. He said XM will provide further details at its planned Jan. 4 news conference at the Consumer Electronics Show in Las Vegas.
Sirius and XM have a history of building up their subscriber guidance and exceeding that guidance. With the hype surrounding Howard Stern’s Jan. 9 arrival at Sirius, analysts had been predicting the satellite-delivered, pay-radio industry would enjoy its best holiday quarter in its short history.
“We view this as good news, but somewhat expected and the pace is in-line with our model” of 3.24 million subs by year’s end, Banc of America Equity Research analyst Jonathan Jacoby said.
The Sirius news implies more than 9,600 net additions per day in the fourth quarter compared with an average of 3,900 per day in the third quarter, notes Jacoby, who is advising clients to sell their Sirius shares.
Jacoby’s concern is partially based on valuation, with Sirius sporting a market capitalization of about $9.3 billion, more than the $6.4 billion that XM sells for despite XM’s superior subscriber base.
Looming capital expenditures on satellite repeaters and spectrum also worry the analyst, as does a belief that by second-half 2006 “the Stern momentum will subside and best case is for a 50-50 retail share split with XM.”
Despite Wall Street’s favorable reaction to the Sirius news Tuesday, shares in the dueling firms have not performed well this year, with Sirius off 8.3% and XM down 22.9%.
The popularity of iPods and MP3 players is hurting shares of both companies, Bear Stearns analyst Robert Peck said, adding that those who worry about such a competitive threat already are discounting a worst-case scenario, providing a buying opportunity for shares of each.
“Recent subscriber growth clearly points to the significant potential the industry holds,” he said.
