Sirius narrows gap on sub adds

Karmazin shows merger confidence; shares inch up

Sirius Satellite Radio signed up more customers and lost less money in its second quarter than Wall Street expected, sending shares up 1.4% on Tuesday to $3.01.

The firm, which is trying to merge with its primary competitor, XM Satellite Radio, lost $134.1 million, down from a $237.8 million loss in the same quarter a year ago. On a per-share basis, Sirius lost 9 cents, while analysts predicted 10 cents.

The company added 561,493 subscribers in the quarter, bringing its total to more than 7.1 million. Rival XM had 8.25 million subscribers at last count.

The only metric where Sirius fell short was revenue, which came in at $226.4 million, up from last year's $150.1 million but nearly $2 million shy of Wall Street expectations.

Wedbush Morgan Securities analyst William Kidd said subscriber additions exceeded his forecast by 100,000. He expressed caution, though, that average subscriber-acquisition costs crept up from last quarter's $104 to $108, even though it is a vast improvement compared with last year's $131.

Kidd reiterated his "buy" recommendation and $4 price target.

CEO Mel Karmazin, as he has been doing most of the year, expressed confidence in gaining FCC and Department of Justice approval for the Sirius-XM merger.

His offensive on that front included a July proclamation that a combined XM-Sirius would be in a good position to offer a la carte pricing that could save consumers money.

"Momentum for the pending merger with XM continues to build," Karmazin said Tuesday. "Support from our customers, suppliers and other groups representing a diverse cross-section of Americans clearly demonstrates the public interest benefits and enhanced competition that will come from the merger."

Wall Street, however, remains skeptical as prominent lawmakers already have expressed concerns over allowing the only two satellite radio operators in the country to merge.

Analyst Kidd said Tuesday that he sees a less than 50% chance of the merger happening and speculated it "will likely be denied within 12 months."

Likewise, Banc of America analyst Jonathan Jacoby said Sirius shares are priced to imply a 45%-50% chance of a merger approval.

While he said Tuesday that subscriber additions "easily topped our estimates" and he upped his year-end forecast to 8.4 million subs from 8 million previously, he also reiterated his "neutral" rating and $2.75 price target on the stock.
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