XM Director Quits

Ernie Estrella · 02-16-2006, 08:21 AM

AP
XM Director Warns of Crisis, Shares Fall
Thursday February 16, 9:13 am ET
XM Director Warns of 'Crisis on the Horizon,' Shares Plunge in Premarket Trading

NEW YORK (AP) -- XM Satellite Radio Holdings Inc. shares plunged in premarket trading Thursday after board member Pierce J. Roberts resigned, and warned of "a significant chance of a crisis on the horizon" in a letter to the company's chairman.
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Roberts, a former investment banker with Bear Stearns who is now a principal with private equity firm Mill Road Capital, said he resigned as a result of disagreements with the company's management over its future direction. He did not state exactly where he feels XM Satellite Radio is going wrong.

"I have been troubled about the current direction of the company and do not believe that it is in the best interest of the company's shareholders," Roberts said in a letter to XM Satellite's chairman that was filed with the Securities and Exchange Commission. "For some time I have made my analyses and observations known in an increasingly vociferous manner to the board and a number of senior managers of the company."

Roberts said he believes he can no longer be effective, given the ongoing disagreement with management and the other board members, and believed in his views "too much to just go along." He could not be reached for comment.

A spokesman for XM Satellite Radio did not immediately return telephone calls.

According to an analyst at JPMorgan, the disagreement stemmed from the company's increased spending on subscriber growth.

Separately, the Washington-based company reported its fourth-quarter loss widened by 42 percent on higher subscriber acquisition costs and marketing expenses. The company said it had more than 5.9 million subscribers at the end of 2005, up 84 percent from a year earlier, and said its total had risen to more than 6 million in the first week of January.

XM Satellite Radio has been under increasing pressure to hold its lead over smaller rival Sirius Satellite Radio Inc., which this year began attracting more subscribers with the addition of shock jock Howard Stern to its lineup. Last week, XM announced media titan Oprah Winfrey would launch her own channel on the network.

Shares of XM tumbled $2.25, or 8.9 percent, to $23 in premarket trading on the INET electronic exchange. The stock closed Wednesday at $25.25 on the Nasdaq, where it has traded within a 52-week range of $23.01 to $37.31.

Sirius shares fell 16 cents, or 2.8 percent, to $5.66 in premarket trading after it closed Wednesday at $5.82 on the Nasdaq.

Chris · 02-16-2006, 08:35 AM

XM Director Quits

Just so that we have a link to go with the story.

Ernie Estrella · 02-16-2006, 08:46 AM

Sorry about that. I got the link for anyone who wants to check it out.

Link to the article I found

Chris · 02-16-2006, 11:43 AM

No problem. Tomorrow is SIRI's turn to announce.

Here's the key numbers for them:

Before today, the results were expected to be:

XM Lose $250M, ~900,000-1M in growth.
Actual was XM lost $280M, 896,000 growth.

So, not nearly as bad as painted, but not as good as it could have been, thus the fall.

SIRI is expected (was) to lose $290M and add ~1M-1.1M in subscribers in Q4 (note: this is not Q1, so ending of Dec. 31)

I don't expect SIRI to lose less then $280M, so they will probably lose more then XM (as predicted) but if they keep the margin close, it will be a good sign for them. (ie, if they hit the market expectation). On the other hand, if SIRI can show that they signficantly outpaced XM in subscriptions in Q4 (XM=896,000, so if SIRI came in at 1.3M or more, which is still a bit of a longshot) it would be a monumental boost to their stock because it would be a sign that in a full quarter SIRI showed more consumer level growth then XM.

Although it doesn't change that XM has more subscribers, it would be a significant boost as far as perception of "momentum" in the market.

But we'll have to wait and see. If SIRI loses more then $315M or if the have less then 1M activations, SIRI will also face a similar significant tumble.

The rule of thumb will be: XM underachieved against market predictions. Can SIRI overachieve or even just hold serve? That's their goal now.

Doug^Ch · 02-16-2006, 12:14 PM

When I subscribed to XM a little over a year ago, I paid for a 2 year deal. At this point in time, I'm glad that I did not go for the five year deal, because who knows if they will still be here in five years. The satellite companies are spending way too much on promotion and "big name" talent. I only listen to the music and could not care less about all the other crap on the other channels. Every time I try to listen to any of it, there are almost as many commercials as terrestrial radio. XM would be better off to put their money into expanding bandwidth on the music channels and put out CD quality sound. If they keep up this insane competition with Sirius to grab any big name and throw money at them, They won't be around in five years.

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Ronald Epstein · 02-16-2006, 12:36 PM

This is not good news at all for satellite
radio. In a way, we can only hope that SIRI
posts positive results tomorrow or it will
bring both companies down even further.

You are looking at a guy that bought XM
at a high of $40 and has seen this stock
plummet over the past year.

I own SIRI stock too, and have taken a
smaller loss.

I think those of us who own satellite radio
know the potential of the industry, but are
greatly worried by the amount of overspending
both these companies have done in order to
bring in new subscribers.

Ernie Estrella · 02-16-2006, 02:57 PM

Ron,

I imagine Sirius will post a loss as well. Both companies have thrown a slew of money at talent. I just don't see it as a good week for both companies, but who knows? But Both companies are still in their infancy. I mean remember when FM was an ignored commodity? But as far as an XM shareholders can imagine, it's never good when an executive steps down and has ill-fated words on the way out.

Blu · 02-16-2006, 05:36 PM

Not good news at all for the future of SatRad. Every subscriber of both services need to hope for the best to maintain a competetive balance.

If one company goes under then it would devastate Satellite Radio for a long time to come.

Jeff_CusBlues · 02-17-2006, 06:44 AM

Quote:

I mean remember when FM was an ignored commodity?

This quote gives me chills. I do remember when FM was an ignored commodity. It also had great programming then. Programing more like XM has. Does this mean if XM becomes a less ignored commodity, the programing will become more like current FM? I hope not. Just a thought.