XM 'Cash Flow Positive,' But Struggling

Even though XM Satellite Radio has achieved a positive cash flow, lagging subscriber growth to competitor Sirius is problematic. However, the news of both services moving ever so slowly towards profitability made Wall Street happy.

Once far outpacing its smaller rival in subscriber growth, XM now finds itself being outpaced by Sirius by over a 2 to 1 margin. For the crucial fourth quarter, the company added about 442,000 new subscribers, compared with 905,000 for Sirius.

During the year, XM lowered subscriber guidance twice, from 9 million initially to 7.7 to 7.9 million late in the year. But the company missed even its lowest target by a small margin, ending the year with 7.625 million subscribers.

XM CEO Hugh Panero attempted to put a positive spin on the disappointing numbers. "XM completed another year of significant subscriber growth, despite retail softness, and did so with continued cost controls, achieving positive cash flow from operations during the fourth quarter," he said.

Sirius also missed its expected target of 6.3 million, it should be noted, although it had also reduced its target to between 5.9 and 6.1 million late in the year. The company ended the year with just over 6 million subscribers.

In any case, achieving positive cash flow is important. By becoming 'cash flow positive,' a company is able to pursue more opportunities to increase shareholder value and is healthier overall. In the short term, at least.

Financial analysts indicated that a miss for XM was likely already priced into the stock due to indications that sales remained weak during December at retail. Others said the numbers could bolster the idea of a merger between the two companies, and for "significant change" in the industry.

In midday trading, XM was up 28 cents to $15.26, but not after beginning the trading session down sharply on the news. Sirius was up four cents to $3.81.