SIRIUS XM Posts Excellent Results - Analyst Blog

SIRIUS XM Radio Inc. (SIRI) declared highly encouraging financial results for the second quarter 2010. These were the combined results of double-digit growth in revenue, significantly higher net addition to its pay-radio services, and a meaningful improvement in ARPU.

Quarterly net income was $15.3 million or a break-even per share compared to a net loss of $159.6 million or a loss of 4 cents per share in the prior-year quarter. Second quarter EPS of a break-even was exactly in line with the Zacks Consensus Estimate.

Quarterly revenue of $699.8 million was an improvement of 18.4% year-over-year and was also above the Zacks Consensus Estimate of $682 million. This was primarily due to an increase in subscriber base, higher sale of "Best of" programming, and rate increases to the company's multi-subscription and Internet packages.

Quarterly total operating expenses were $574.1 million, compared to $553.6 million in the year-ago quarter. Operating income in the second quarter was $125.6 million, compared to operating income of $37.2 million in the year-ago quarter. Quarterly adjusted EBITDA was $154.3 million, compared to $132.2 million in the prior-year quarter.

During the second quarter of 2010, SIRIUS XM generated $178.7 million in cash from operations, compared to $70 million in the year-ago quarter. Free cash flow (cash flow from operations less capital expenditures) in the same quarter was $108.3 million, compared to $12.7 million in the year-ago quarter.

At the end of the second quarter of 2010, SIRIUS XM had $258.9 million cash & cash equivalents and $3,028.2 million of outstanding debt, compared to $383.5 million cash & cash equivalents and $2,813.6 million of outstanding debt at the end of fiscal 2009.

Segment-Wise Results

Quarterly Subscriber revenue was $601.6 million, up 7.1% year-over-year. Advertising revenue was $15.8 million, up 25.7% year-over-year. Equipment revenue was $18.5 million, up 69.5% year-over-year. Other revenue was $63.8 million, up 1,044.8% year-over-year.

Subscriber Statistics

During the second quarter of 2010, SIRIUS XM net added 583,249 subscribers, which raised the company’s total subscriber base to 19,527,448 at the end of June 30, 2010. Out of this, OEM subscriber was 12,100,665, Retail subscriber was 7,277,446 and Rental subscriber was 149,337. Payment, category-wise: Self-Pay subscriber was 16,077,714 and Paid Promotional subscriber was 3,449,734.

Important Operating Metrics

In the second quarter 2010, average revenue per user (ARPU) was $11.81 compared to $10.66 in the year-ago quarter. Conversion rate was 46.7% compared to 44.3% in the year-ago quarter. Average self-pay monthly churn rate was 1.8% compared to 2% in the year-ago quarter. Subscriber acquisition cost was $59 compared to $57 in the prior-year quarter. Customer services & billing expenses per subscriber was $1.01 compared to $1.05 in the year-ago quarter.

Future Financial Outlook

Management is expecting that full-year 2010 revenue of SIRIUS XM will be nearly $2.8 billion. Free cash flow in 2010 will be around $150 million. The company also projected the net addition of about 1.1 million subscribers in 2010. Adjusted EBITDA, for fiscal 2010, is likely to reach $575 million.

Our Recommendation

SIRIUS XM’s business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both the XM and SIRIUS satellite radio services. Improving U.S. economic conditions have resulted in the recovery of auto sector sales together with better-than-expected consumer spends prompted management to present a rosy picture.

We maintain our Neutral recommendation for SIRIUS XM. Currently it is a Zacks #3 Rank (Hold) stock.
 
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