- The Washington Times - Monday, June 14, 2004

XM Satellite Radio Holdings Inc. said yesterday that it has passed the 2 million subscriber mark, a rapid pace that will bring the D.C. company closer to profitability.

The radio satellite subscriber started offering its service nationwide in November 2001 and had 1 million customers by October 2003. XM Satellite has forecast 20 million customers by 2010.

Analysts were surprised by the timing of the announcement. Most expected the company to reach the 2 million mark later this month.

“I think this bodes well for XM’s products and services. The company has continued to execute well on its business plan and demonstrate the widespread appeal for satellite radio,” said April Horace, an equity research analyst with Janco Partners Inc., a Greenwood Village City, Colo., investment bank.

The prospect of shock-jock Howard Stern coming over to satellite radio also could bump up sales, said Ms. Horace, who rates XM Satellite a “buy.”

The controversial radio personality, who has been heavily fined by the Federal Communications Commission for violating decency standards, has hinted at moving from Viacom to satellite radio, which is not subject to FCC regulation.

XM Satellite spokesman Allen Goldberg would only say yesterday that XM executives have approached Mr. Stern.

XM Satellite’s customer base should not be viewed as a “litmus test” for satellite radio’s success, said Alden Mahabir, a senior analyst with New York investment research firm Vintage Research LLC.

The company is showing promising customer numbers, but it still has to grapple with financial losses, he said.

Mr. Mahabir, who does not own any XM Satellite stock, advised investors to buy XM shares.

XM Satellite shares dipped 39 cents yesterday to close at $23.98 on the Nasdaq Stock Market. The stock traded as high as $29.86 in April.

Despite a boom in sales in the first quarter ended March 31, the company is still operating in the red. XM Satellite’s losses widened 35 percent in the latest quarter to $170.1 million (96 cents per share) from $126.3 million ($1.26) a year earlier.

“No one is questioning the company’s top-line subscriber growth, not even us. But at the end of the day, the company still needs to make money,” said Daniel Ernst, an analyst at New York investment bank Rodman & Renshaw LLC. Mr. Ernst, who does not own any company shares, gave XM Satellite his company’s lowest rating of “market underperform.”

XM Satellite plans to break even during the first half of next year, Mr. Goldberg said.

And Mr. Goldberg pointed out that sales leaped to $43 million in the recent quarter from $13.1 million in the previous year, making it the first quarter that the company’s sales exceeded its fixed quarterly expenses of $37.1 million.

The cost to acquire a new subscriber also dropped 32 percent to $106 from $156 last year, XM stated.

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