XM In Trouble?

DC-based XM Radio may be in a pile of trouble, after Federal Regulators were called in to check to see whether or not the company has violated laws concerning billing and marketing. Worse still, the company also put out its earnings statements for the first quarter. Did I say earnings? I meant losses. XM is out $150 Million for the 1st quarter, though subscribers are up.

What does this mean for XM? A beating at the stock market, for sure. Stock is trading at 20.31, 8% below opening, 1 hour ago, which is near a 52 week low. Ouch, XM. Ouch. Time to pull it together.

8 Comments so far

  1. Scarlet (unregistered) on April 27th, 2006 @ 11:00 am

    Oh no! Come on, XM! I Love You!

  2. Tom Bridge (unregistered) on April 27th, 2006 @ 11:32 am

    I know! I love my Ethel/Fred/Lucy combination.

  3. Illusioned (unregistered) on April 27th, 2006 @ 12:33 pm

    What is up with this? WHY is it that every time I turn around there is a story in the news about some firm that is in trouble due to inaccurate reporting of earnings/losses or their stock was over/underprice, blah, blah, blah…??? Is this a result of students of finance and business coming out of schools not knowing how to do the books?

    XM is a successful business concept. Its competition is Sirius but enough to make that much of a dent in their profitability? It doesn’t make sense that it is losing money when subscriptions are up. Does 2 + 2 still equal 4 or did I miss something?

  4. Mik (unregistered) on April 27th, 2006 @ 12:33 pm
  5. Don (unregistered) on April 27th, 2006 @ 12:43 pm

    Financial misreporting is all about gaming the stock price, not incompetence, Illusioned. It’s short-sighted and reckless but… well, prison is full of people who knew other people had gotten pinched for mis-deeds but figured that somehow -they- wouldn’t get caught/make the same mistakes.

  6. Illusioned (unregistered) on April 27th, 2006 @ 1:08 pm

    Still, who are these dolts giving this advice? I have to say I’m talking out of my butt – cuz I haven’t read the e! hollywood story about XM, but I’m assuming that some techies who know about satellite radio got together, knows how to make the stuff work but know nothing about business financials or enough to make certain decisions but not enough to know about “gaming the stock price”.

    Where are the business responsibilities? To your shareholders or to the operations of the business or to the customers? Look at the news and you hear about oil companies making record profits – who are they obligated to make happy? Or what is going on in the Houston courtroom with Ken Lay and his croonies? Or the whole dot.com bubble?

    It is sad – when you think how many great products or services are out there that died. Are the risks really worth it?

  7. Don (unregistered) on April 27th, 2006 @ 5:34 pm

    From a pure business standpoint your obligation begins and ends with the shareholder. They’re the folk who invested their money in the business, they’re the owners. Your obligation to customers begins and ends with your contract with them, explicit and/or implied – nothing more.

    Where this gets fuzzy is in determining what exactly is the best thing for your shareholder. Fifty years ago when buy & hold was more commonly practiced you demonstrated this with cash dividends. The common belief was that the purpose of a company was to pay dividends to shareholders. Now we have a more nuanced belief – that the purpose of a company is to increase the wealth of the shareholder. You can do this with a cash payout or you can do it by increasing share price.

    These days we have a LOT of stock options – where a person doesn’t actually own the stock, but a right to purchase a stock at a certain price – in play. A cash dividend does them no good since they don’t actually own the stock – those are paid only to current share holders. So you can imagine what’s preferred by option holders between dividends and increased share price.

    These management teams that are gaming the stock price are responding to the pressures of the market. In many sectors a CEO who runs a lean and profitable ship is going to be tossed out if that quality doesn’t translate into better share prices. There’s also the not insignificant motivation of upper management whose compensation includes lots of shares and options.

    So, the dolt giving this advice are people who are listening to what’s being asked of them. It doesn’t excuse committing illegal activity but it’s no surprise when these people put share price above longevity. If you have a quick and easy solution to the problem, well, the entire business world is waiting to hear it. Exactly what percentage is interested in actually implementing it is unclear.

  8. Illusioned (unregistered) on April 27th, 2006 @ 7:42 pm

    Things like greed, human nature, ethics and motivation floated around as I tried to wrap my head around what I could “blame” as the culprit for where the business world is today.

    I concede that I have no answers to my rhetorical and philosophical rantings. Just more questions.

    And I have gone off on a tangent, away from the original post by Tom – as someone who works in marketing, it is difficult to measure the value of marketing and how it relates to earnings. My work is considered overhead – the little black hole that sucks up money – because a lot of marketing is psychological and involves immeasurable things like feelings and motivations, which in turn affect buying behavior. Wow, Consumer Behavior 101 is all coming back to me.

    Good luck, XM. You’re gonna need it.

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