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Sirius Seen Reaching Breakeven Before XM


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#1 of 1 William Laughner

William Laughner

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Posted December 30 2005 - 09:38 AM

Forbes.com
Market Scan
Sirius Seen Reaching Breakeven Before XM
Ed Lin, 12.20.05, 3:06 PM ET

Caris & Co. analyst Susan Kalla initiated coverage of both XM Satellite Radio Holdings (nasdaq: XMSR - news - people ) and Sirius Satellite Radio (nasdaq: SIRI - news - people ) at "above average."

"XM has the first-mover advantage in the satellite radio industry, giving it the largest subscriber base and revenues," Kalla noted in a research report. XM "is also further ahead in hardware development, with three portable devices compared with Sirius Satellite's one."

Channel checks indicate above-consensus subscriber growth near-term for Sirius and "the debut of Howard Stern's new show is driving share gains from free radio." Also contributing to demand is a new portable satellite receiver and digital recorder.

XM has exclusive distribution agreements, including one with Wal-Mart Stores (nyse: WMT - news - people ) for sales of portable radios and one with Time Warner (nyse: TWX - news - people ) unit AOL for streaming audio channels on the Internet.

Sirius "may be able to bring down subscriber acquisition costs to $100 per sub, leading to a breakeven in 2006." Kalla said Sirius could reach about 16 million subscribers by 2010.

Kalla sees XM with 18 million subscribers by 2010, "slightly below company guidance, albeit forecasting a nascent industry over five years is error-prone." But Kalla doesn't expect XM to reach breakeven until 2007, after which "earnings growth could exceed revenue growth due to operating leverage."

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