XM Shares Reach Higher Orbit

Investors bid the stock higher after the company said it expects positive cash flow from operations in the fourth quarter

XM Satellite Radio (XMSR) on Nov. 6 announced a 36% improvement of its losses in the third quarter, as it grapples with costs and battles for subscribers.

The satellite radio company said it had a net loss of $84 million in the recent quarter, or 32 cents per share, compared to a net loss of $132 million, or 60 cents per share, during the third quarter of 2005. The mean analyst estimate had been for 46 cents per share loss, according to the San Francisco research firm StarMine.

"With significant growth in revenue and narrowing losses we are on track for positive cash flow from operations in the fourth quarter of this year," said XM's Chief Executive Hugh Panero in a press release.

After the news, the company's shares surged 14.75% to $13.07 per share on the Nasdaq. XM's stock has plunged from its 52 week high of $32 per share on Nov. 21, 2005, following the company's struggles in recent months with challenges such as a probe into its marketing activity, accusations that it misled investors, and criticism of its spending. The stock's 52 week low was $9.63 per share on July 27.

The company has increased its subscriber base, after taking steps such as bringing in Oprah Winfrey fans with a new channel from the talk show celebrity. The "Oprah & Friends" channel debuted on Sept. 25.

XM said subscriber growth contributed to its 57% revenue improvement to $240 million, from the $153 million reported in the third quarter 2005. XM ended the third quarter with 7.185 million subscribers, an increase of 43% over the prior year's third quarter.

"We see [the] new Oprah channel helping with long-term ad revenues," said Standard & Poor's Corp. analyst Tuna Amobi in a research note. He maintained a hold opinion on the stock. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

XM now expects 7.7 million to 7.9 million subscribers by the end of 2006, compared to prior guidance of 7.7 million to 8.2 million.

XM's subscriber acquisition cost during the third quarter was $60, compared to $53 in the third quarter of 2005.

Amid its recent travails the company has changed senior management. During the third quarter the recently named President and Chief Operating Officer Nate Davis made a number of new appointments on the senior management team, including Vernon Irvin, a former Executive Vice President and General Manager for VeriSign, who was made Chief Marketing Officer.