SIRIUS Finally On Right Track (SIRI)

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SIRIUS XM Radio Inc. (NASDAQ: SIRI) is flirting with the $1.00 handle again.  This morning’s run in the stock is after the company’s subscriber additions came in above expectations.  The company has added more than 1.1 million subscribers from a year ago and now has 19,527,448 subscribers, a record high.  Many can argue that SIRIUS XM has been on the right track since its near-death in 2009, but this guidance pop is looking to be enough to move the needle.  What is more important is how this ties in with its ultimate path to profitability.

Today’s data showed that SIRIUS added some 583,249 net subscribers in the second quarter of 2010.  A year ago in the same quarter, SIRIUS had a decline of 185,999 subscribers.

In the second quarter, its gross additions rose 46%, while deactivations fell 8% (versus a year ago).  Self-pay churn came down to 1.8% for the second quarter from 2.0% the same quarter a year ago.  Also rising was the conversion of pay subscribers after trials: 46.7%, up from 44.3%.

More importantly, the company has raised its subscriber guidance and now sees adding 1.1 million net subscribers for 2010.  It was just in mid-May when CEO Mel Karmazin said net subscriber additions for the full year to be about 750,000.  Shares were trading at $1.09 on that date.  At that time, Karmazin also added the following guidance:

  • pro forma revenue to be about $2.75 billion,
  • pro forma adjusted income from operations to be about $575 million,
  • expects free cash flow for 2010 to exceed $100 million.

What is interesting is that there is still no yardstick for true profitability.  Part of that is because there are so many shares outstanding that SIRIUS would have to make hundreds of millions of dollars in profits just to post a real penny or two of earnings.  That is why a reverse stock split is a permanent possibility here.  Thomson Reuters has estimates at $0.00 for 2010 and $0.02 EPS for 2011.  Revenue estimates for 2010 and 2011, respectively, are $2.77 billion and $2.97 billion.

If all works out as the company plans, it seems that SIRIUS XM is on the right path of redemption.  The caveat here is that a double-dip recession would in now possible way leave SIRIUS unharmed.  Then there is the Stern issue, but that is to be reviewed again later.

Shares have traded in a range of $0.97 to $1.01 and the stock is up over 6% at $1.00 on over 35 million shares in less than the first 90 minutes of the trading day.

If the $1.00-mark holds, this will break a streak of 5-days with the stock having been under the buck.

JON C. OGG