Well done, XM Satellite Radio
The five-year-old radio service also saw its net subscriber base grow by 43% over the past year, to 7.2 million members.
Is XM perfect? Hardly. This morning, it reduced its year-end subscriber target range for the third time. It is now looking to close out the year with between 7.7 million and 7.9 million subscribers. That's troubling, since the addition of Oprah Winfrey's channel in September should have been a major attraction and a potential catalyst for upward revision. Her arrival has helped bring more conventional advertisers on board, like Target
Subscriber acquisition costs also inched higher over last year's showing, though that metric has shown considerable sequential improvement since its marketing-bloated overhead in the holiday quarter of 2005. It's also a misunderstood metric, since most investors fail to realize that the company makes most of its expenses back immediately; the average new subscriber prepays for the first nine months of service.
The company is doing a few things right. It's moving away from costly equipment subsidies, it finally has a marketing campaign worth marketing, and it continues to sign up new distribution partners. This morning, it announced that Cingular -- the popular wireless service formed by AT&T
XM is also sticking to its target of producing positive operating cash flow during the current quarter. That would be a big first step toward validation. Hopefully, it won't be the last.
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Alltel is a Motley Fool Income Investor pick, while AT&T was a former Stock Advisor pick.
Longtime Fool contributor Rick Munarriz has been a Sirius satellite subscriber since 2004 and an XM subscriber since this spring. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.