By Renae Merle
Washington Post Staff Writer Wednesday, July 24, 2002; Page E05
XM Satellite Radio Inc. yesterday reported increasing losses during its second quarter even as it reached 136,718 subscribers, passing its goal for the period.
During the quarter ended June 30, XM reported a loss of $122 million ($1.38 per share), compared with $44 million (76 cents) during the same period a year ago. The loss was higher than analysts' expectations of $1.29 per share, according to a survey by First Call/Thomson Financial.
That helped spur a Wall Street sell-off and the company's stock lost $1.25, closing at $4 yesterday, a 52-week low.
XM reported revenue of $3.8 million for the quarter. It had no revenue during the year-earlier period because it hadn't launched its service yet.
"We're pretty pleased" with the earnings report, said Hugh Panero, chairman and chief executive. "We are in a difficult market and we continue to show that we're a product in demand."
District-based XM and its New York-based competitor, Sirius Satellite Radio Inc., have taken on the tricky task of luring radio listeners to a national alternative that beams 100 channels from satellites to anywhere in the country for $10 to $13 a month. XM began signing up subscribers in late September and launched nationally in November; Sirius launched its service in late winter.
XM announced yesterday that in September it would begin offering its first premium channel, Playboy Radio, for an additional $2.99 a month. It also said it would roll out the second generation of its technology, with cheaper chipsets, by the end of the year.
The higher losses were expected as XM made the transition from developing technology to offering service. During the quarter, the cost of customer care and billing operations shot up to $3.9 million, from $1.6 million. But the firm's sales and marketing budget had the biggest jump, to $46.8 million from $7.3 million.
It's expected to be at least three years before XM makes a profit. The company said it has enough cash on hand to fund its operations into the first quarter of 2003.
Given the current market, it could be difficult for XM to raise more money through a secondary stock offering, said William Kidd, an analyst with investment banking firm Lehman Brothers. He said it could be forced to raise cash from new strategic partners or its current partners, which include radio giant Clear Channel Communications Inc.
"I think it's the number one concern," Kidd said. "I don't think satellite radio is a number one priority among the investment community right now."
A key part of XM's strategy for profitability is having the radios installed in new cars. A customer is more likely to absorb the cost of a satellite radio, which can run more than $300, when already spending $20,000 for a new car, the theory goes. General Motors Corp. has said the radios would be available in 25 of its models.
"We are now switching gears to the General Motors launch, which is like the second launch of the company," Panero said.
XM also reaffirmed its forecast of 200,000 subscribers by the end of the current quarter and 350,000 by year's end.
XM's stock closed at a 52-week low on Tuesday, following the earnings report.
(File Photo/Jahi Chikwendiu - The Washington Post)
