Street supports XM's cost containment

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Shares of XM Satellite Radio surged 15.6% on Monday after the company reported quarterly earnings that suggest its priorities are shifting from rapid growth to cost containment.

XM lost $84 million in the third quarter compared with a loss of $132 million in the same quarter a year ago. On a per-share basis, the company lost 32 cents, better than the 46 cents that analysts forecast. Revenue grew 57% to $240 million.

As previously announced, XM added 285,000 subscribers in the quarter to reach 7.2 million. On Monday, the company narrowed its subscription guidance to the low end of its previous range.

XM, run by CEO Hugh Panero, now expects to end the year with 7.7 million-7.9 million subscribers, while it previously expected as many as 8.2 million.

Investors keyed on the positive news of a smaller loss, and XM's prediction that it will have positive cash flow from operations during the current quarter, news that lifted shares $1.78 to $13.17 and made XM and its competitor Sirius Satellite Radio the two biggest gainers on Monday's THR Showbiz 50.

XM stock has been decimated so far this year and remains closer to its 52-week low of $9.63 than to its high of $32.

Executives at XM also said the company's new low-cost posture includes reining in subsidies and offering longer free trials in exchange for longer subscriptions.

Shares of Sirius, run by CEO Mel Karmazin, rose 6.9% to $4.02. Sirius is scheduled to release its quarterly financial results Wednesday.

XM said churn rose from 1.4% to 1.8% during the quarter as purchasers of cars equipped with XM elected 52.2% of the time to keep the service after their free trial period ended. That was a decline from the 56.1% who converted to paying subscribers a year ago.

The conversion rate "should improve modestly in the fourth quarter," XM president Nate Davis said.
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