The Headline Does Not always tell the story.
"XM Losses Expand. Estimates Miss As SAC Increases"
The headline is technically accurate. XM's loss did expand, and SAC was higher. The question though is whether or not the performance in Q1 of 2008 is good for the company going forward.
What we see when we look deeper into XM's quarter is a company that is investing into their future. Revenue did jump. This was expected. After all, they have more subscribers this year than they did last year. SAC did increase. This is because the company is making a substantial investment into some OEM partners that are absorbed in a slight different manner than other OEM deals. Manufacturers such as Toyota, Nissan, and Hyundai get a subsidy, but do not participate in the subscriber numbers until these radios have self paying subscribers.
This means that XM invests into a radio with these manufacturers with the payoff happening a bit down the road. With a conversion ratio at 53%, that investment will pay off at some point, and the revenue gained from the self paying subscriber can then be used to invest into more vehicle stereo installations.
What XM has done is keep costs and their loss under control, while also investing in their growth. This investment in the OEM channel by XM will bear fruits at some point. Looking at this quarter, the losses are all in areas that will deliver future value, and that is the direction that these companies need to be focused on.
I would term the quarter a good quarter, especially considering where XM spent their money. This quarter shows stability with a predictable outcome vs. spending on content which has a less predictable benefit.
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Position - Long XM