XM disappoints with year-end subscriber tally

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The numbers are in: The dueling satellite radio outfits are cash-flow positive, though with fewer subscribers than both companies had anticipated.

XM Satellite Radio said Friday that its preliminary results show positive cash flow from operations during the fourth quarter, matching a previous announcement from Sirius Satellite Radio.

The bad news, though, is that XM also said that it ended the year with 7.63 million subscribers, shy of the 7.7 million-7.9 million the company had predicted. XM had predicted ending the year with 9 million subs before ratcheting down its guidance on two separate occasions.

Sirius last week said it ended the year with 6 million subs, about the midpoint of its guidance, which also recently was cut. The company had predicted it would finish 2006 with 6.3 million subs.

XM and Sirius are set this week to show off their wares in Las Vegas at the Consumer Electronics Show, and executives will speak there at the Citigroup 17th annual Entertainment, Media and Telecommunications Conference.

Investors who decimated the stock of both companies last year -- to a tune of about 47% each -- have so far been cheering the news of subscriber counts and positive cash flow. After the first week of trading this year, shares of XM were up 6% and Sirius was ahead 7.3%.

Wall Street analysts seem a bit more skeptical, with some partially attributing the rise in stock prices to persistent predictions that the companies might soon merge. As of Friday, Sirius, the satellite radio home of Howard Stern and the NFL, was the more valuable company, sporting an enterprise value of $6 billion compared with XM's $5.1 billion, despite having about 1.6 million fewer subscribers.

"To the extent XM continues to trade on merger speculation, the higher the share price, the closer the enterprise value split, the higher the conviction, we believe consensus will incorporate that a deal happens," Goldman Sachs analyst Mark Wienkes said.

The latest subscriber results suggest that XM added 442,000 net subscribers in the fourth quarter while Sirius added about 905,000.
Sanford Bernstein analyst Craig Moffett called XM's subscriber additions "weak," and Bank of America analyst Jonathan Jacoby said they were "even worse than expected."

Moffett added that XM's less than stellar sub additions might actually bolster the case for a merger, assuming government regulators would even allow such a combination.
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