Sirius Sings the Holiday Blues

Shares of the satellite-radio outfit sank Tuesday after it said post-Thanksgiving retail sales have been slower than expected

Sirius Satellite Radio (SIRI) warned late Dec. 4 that it expects to have fewer subscribers this year than first thought, explaining that retail sales have disappointed since Thanksgiving weekend.

The New York company updated its year-end 2006 subscriber guidance to between 5.9 million and 6.1 million. Previously, it had forecast 6.3 million.

"While strong, this year's retail sales results since the Thanksgiving weekend have not been at the pace we had anticipated," said Mel Karmazin, CEO of Sirius, in a press release. Karmazin pointed out that the company had added 500,000 subscribers in the last ten days of 2005, representing nearly 25% of the year's net additions.

In January, Sirius hired radio personality Howard Stern, in an effort to add millions of listeners to its subscriber base. The company did manage to bring its total subscribers to 5,119,308 at the end of the third quarter, up 135% from a year earlier. Sirius had surprised market players on Nov. 8 with news that it lost less money than expected during the period.

"We sensed retail pullback for the satellite category amid iPod/MP3 competition. Still, we are surprised by the revision, after Sirius' upbeat tone at its third quarter earnings call last month," said Standard & Poor's equity analyst Tuna Amobi in a Dec. 5 research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) Amobi downgraded Sirius to hold from buy.

Investors sold the stock 6.5% to $3.90 per share in early afternoon Nasdaq trading on Dec. 5. Shares of rival XM Satellite Radio (XMSR) fell 2.3% to $14.27.

Bear Stearns downgraded Sirius to underperform from outperform, noting factors such as the weak retail environment and the tough Howard Stern comparison. "We do not think Sirius warrants a premium at this stage," analyst Robert Peck said in a research note.