XM reports loss, but shares rally

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XM Satellite Radio reported a loss that was a smidgen less than what investors had been expecting, but it was enough to spark a rally in its shares Thursday that spilled over to hopeful merger partner Sirius Satellite Radio.

XM narrowed its loss in the first quarter to $122 million from a loss of $149 million in the same quarter last year. On a per-share basis, XM lost 40 cents, a penny better than analysts' estimates. Revenue rose 27% to $264 million.

The company added 285,000 net subscribers during the quarter to 7.9 million total, though executives said Thursday that it has since exceeded the 8 million mark. The company reiterated year-end guidance of up to 9.2 million subscribers.

Shares of XM advanced 6.4% on Thursday to $11.72, while Sirius shares added 3.9% to $2.94. Both are trading near the low end of their 52-week ranges as investors continue to doubt that federal regulators will allow the two to merge.

Bank of America analyst Jonathan Jacoby said Thursday that the probability of a merger approval is about 40%. If approved, XM shares would be worth $15.50, in his estimation, though he has only a $12.50 price target on XM shares.

Goldman Sachs analyst Mark Wienekes puts the merger probability at 30% and is more bullish on XM than he is on Sirius, which he rates "sell."

"We continue to recommend a long position in XM paired against Sirius," the analyst said Thursday, noting the disparity in the value of the companies. XM had a market cap of $3.58 billion on Thursday compared with Sirius' $4.29 billion, even though XM has more subscribers.

Subscriber-acquisition costs during the quarter at XM rose to $65 from $59 a year ago, and the conversion rate of trial subscribers to paying subs fell from 54.3% to 51.5%, a metric that is worrisome to some.

"We are not happy with the number going down," COO Nate Davis said during a conference call with analysts. "But remember, we're not seeing a 10-point drop here, we're seeing a couple-point fluctuation."
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