Sirius Satellite loss narrows on subscriber growth

NEW YORK (Reuters) - Sirius Satellite Radio Inc. (SIRI.O) on Tuesday posted a smaller quarterly loss on better-than-expected subscriber growth, but concerns about the number of its radios in unsold cars helped depress its stock.

Shares of Sirius, which have been volatile in the run-up to its proposed merger with rival XM Satellite Radio XMSR.O later this year, fell 6 percent midday after rising more than 2 percent earlier in the session.

Sirius said it added nearly 525,000 net subscribers in the third quarter for a total of 7.7 million, helped by a sharp increase in automotive subscribers.

The inventory of so-called "parking lot subs" -- which are counted as subscribers even though the radios are in unsold cars at dealerships -- increased in the third quarter to 11 percent from 10 percent in the second quarter, and from about 9 percent to 10 percent a year ago, Sirius said.

"The potential negative perception would be the retail contribution, and what might have taken investors off-guard was the increase in 'parking lot subs,'" said April Horace, an analyst with Janco Partners.

But Horace noted that the increase points to the car industry's commitment to satellite radio, as automakers equip more vehicles with the radios. Both XM and Sirius see automobile subscribers as key to overall growth.

Sirius reported a quarterly net loss of $120.1 million, or 8 cents a share, compared with a loss of $162.9 million, or 12 cents a share, a year ago. Total revenue in the period rose 45 percent to $241.8 million.

The net loss was in line with average analysts' expectations, while revenue was slightly shy of a forecast of $244.6 million, according to Reuters Estimates.

$1 BLN ANNUAL REVENUE

Analysts were mostly positive about the results, saying they showed healthy gains in Sirius' operations. Deutsche Bank analyst James Dix said the company's net subscriber growth was 33 percent above his estimate of about 395,000.

Addressing the growth in "parking lot subs," Sirius Chief Executive Mel Karmazin said the cars eventually find homes.

"Obviously all of these cars become subscribers. It takes 90 to 120 days for these vehicles to find their ways into the hands of a consumer," he said on a conference call with analysts.

New York-based Sirius said it continues to benefit from its exclusive broadcast of shock jock Howard Stern.

It expects strong holiday season sales and sees full-year 2007 revenue of $1 billion, compared with an average analyst forecast of $944.8 million. The company said it should top 8 million customers by the end of the year.

Sirius and XM are still losing money as they spend to attract subscribers, who pay about $13 a month for more than 100 channels of music, sports, talk and news programming.

XM last week posted a wider net loss because of higher marketing costs, and ended the period with 8.57 million subscribers.

The U.S. Federal Communications Commission and the Justice Department are reviewing the XM-Sirius deal, which would combine the only two providers of satellite radio service in the United States. Karmazin said he still expects the deal with XM to close by the end of this year.

Sirius shares fell 19 cents to $3.42 and had traded as high as $3.66 earlier in the day.