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Sirius XM Radio stock falls after disappointing subscriber report

The satellite radio firm added 334,000 subscribers in the third quarter, but analysts were expecting as many as 400,000. Its shares drop 3.4%.

November 02, 2011|By Alex Pham, Los Angeles Times

Sirius XM Radio Inc.'s subscriber growth received a cool reception on Wall Street as investors became worried that the satellite radio company might lose customers early next year when its 12% price hike takes effect.

In announcing its third-quarter earnings Tuesday, the New York company reported 21.3 million subscribers as of Sept. 30. That's up 334,000 from July — mostly from consumers who bought new cars and began subscribing to the service — but below analysts' expectations of as many as 400,000 new subscribers.

Combined with the Jan. 1 price increase, investors fretted that Sirius could end up losing subscribers, pushing Sirius' shares down as much as 8% in early-morning trading. The stock recovered some of that loss, closing at $1.73, down 6 cents, or 3.4%.

Sirius Chief Executive Mel Karmazin in August said the company would raise its prices after federal regulators lifted a three-year ban on price increases that it imposed as a condition of allowing Sirius to merge with XM in 2008. Subsequently, the company announced that starting next year, the base price of its radio service would rise to $14.49 a month from $12.95.

In a call with Wall Street analysts Tuesday, Karmazin stressed that the increase, the first for Sirius customers since 2002 and for XM subscribers since 2006, would amount to just 5 cents a day and would help the company increase revenue and cash flow and invest in additional programming.

"Never before in the company's first decade of operations had Sirius changed its core price of $12.95 per month," Karmazin said, "despite adding a tremendous amount of premium content that didn't exist when the company launched service."

Analysts on the call with Karmazin asked how the hike would affect the company's "churn rate," the number of people who drop the service.

Karmazin defended the forthcoming price hike: "The price increase is not in any way, shape or form egregious. It's not something that we're doing regularly. And we don't think that it should impact our growth next year."

For the quarter that ended Sept. 30, Sirius reported $104 million in net income, or 2 cents a share, up 54% from a year earlier. Revenue of $763 million was up 6% from a year earlier.

The results beat analysts' forecasts of 1 cent a share.

alex.pham@latimes.com

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