Sirius Black … and Blue

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Good luck keeping up with Sirius XM Radio (Nasdaq: SIRI  ) .

The satellite radio operator posted fourth-quarter results last night, a week ahead of the scheduled release date. The news even caught Sirius XM by surprise, since its rescheduled conference call to discuss yesterday's financials won't take place until tomorrow morning.

Was it worth the wait, or lack thereof? In many ways, it was. Pro forma revenue inched 16% higher to $644.1 million. The company's pro forma net loss of $248.5 million is nicely leaner than the $405.0 million it bled a year earlier.

The merger between Sirius and XM is already starting to bear fruit. The company was able to slash cash operating expenses by 22%, including 20% at the G&A level and even a surprising 4% reduction for the programming and content line item.

The encouraging takeaway here is that Sirius XM is posting positive pro forma adjusted income for the first time.

And now for the bad news
The report wasn't perfect, of course. The company closed out the quarter with just 82,945 more subscribers than when it started. It's great to see Sirius XM top the 19-million-subscriber mark, but this was also a company that as recently as early November was looking to land 200,000 net users during the period. Things must have deteriorated quickly; the company is now the only game in town when it comes to satellite radio, and it landed less than half of the net acquisitions it was banking on.

Then again, back in September, Sirius XM was telling investors that it was on track to close out the year with 19.5 million subscribers.

"How confident can you be that Sirius XM will hit the 19.1 million subscriber mark when it reports in two weeks?" I questioned earlier this month. "My prediction is that it manages to stay barely positive in gaining subs during the fourth quarter, but warns that it will lose net subscribers during this year's first quarter."

I guess my pessimism was warranted.

"These aren't dummies at Sirius XM just throwing darts to provide guidance," a reader responded, claiming that the company should have no problem landing 200,000 extra listeners during the period.

They're not dummies, but they are leaning toward duller and duller darts.

If the company isn't pressed into conceding that it will shed net subs for the current quarter during tomorrow's conference call, don't expect Sirius XM to kid itself by projecting sequential gains.

It certainly has the perfect scapegoats around if it decides to fess up. It can point to crushingly bleak sales at automotive partners like Ford (NYSE: F  ) and General Motors (NYSE: GM  ) . It can point to other entertainment subscription services like TiVo (Nasdaq: TIVO  ) and DISH Network (Nasdaq: DISH  ) that are also shedding accounts, and those services aren't trying to swim upstream against the current of plummeting car sales.

It's already feeling the sting of tightfisted radio listeners. Churn went slightly higher, from 1.7% to 1.8%; that may not necessarily be a big deal, but the news is grim on the conversion rate. Just 44.2% of car buyers are opting to pay for satellite radio once their free trials run out. The company's conversion rate clocked in at a healthier 51.4% a year ago. Conversions had already deteriorated to 47% during the company's third quarter. It's problematic if car buyers and automakers begin viewing satellite receivers as burdensome and costly paperweights.

Another puzzler in the report is that ad revenue shrank by 23% to $15.8 million, even though Sirius XM is watching over 10% more subscribers than it did a year ago. Commercial-free music is commercial-free, but what the heck is going on with the company's ad-bearing channels and sponsorship opportunities?

And now back to the good news
I did begin by saying that the report was mostly positive, so let's wrap this back around to close with a few other welcome developments.

Despite the regulator-mandated rate freeze and the advertising shrinkage, the average monthly revenue per user rose from $10.42 to $10.60. The uptick comes from the introduction of the "Best of" packages, where Sirius and XM subscribers pay $16.99 a month to receive the more popular channels from the rival service.

Work the math and you'll see that only a sliver of the company's user base is willing to pay $4 more a month for the extra content, but it's still a positive number. With acquisition costs falling from $83 to $70 per gross subscriber over the past year, it's refreshing to see revenue per user climb as the price of attraction dips.

The big number here, though, is the $31.8 million in positive pro forma adjusted profit that Sirius XM scored during the quarter. To put this into its proper perspective, Sirius XM was able to grow its revenue by $86.6 million during the quarter, while shrinking its operating expenses by $219.8 million.

The backdrop may not be ideal. Liberty Media (Nasdaq: LINTA  ) beat out EchoStar (Nasdaq: SATS  ) to bankroll Sirius XM's near-term survival, and that's good. However, the deal only pushed out maturities at chunky interest rates, bloating the company's share count by more than 2 billion along the way.

The company has plenty of things to be proud of when it addresses analysts tomorrow morning, but it will also have some explaining to do.

Speak up, Mel Karmazin. We're listening.

More news than static on Sirius XM:

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story, save for TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2009, at 5:14 PM, nobleman080 wrote:
  • Report this Comment On March 11, 2009, at 5:38 PM, asm610 wrote:


    News wasn't bad....but hoping to hear even better news tomorrow regarding the way forward. Greg Maffei id a good interview with Maria Bartoromo that gives me some hope. The Liberty folks seem to have some sort of plan in the early stages for growing subs based on what he said.

  • Report this Comment On March 11, 2009, at 8:49 PM, FoolNHisMoney wrote:

    ""These aren't dummies at Sirius XM just throwing darts to provide guidance," a reader responded, claiming that the company should have no problem landing 200,000 extra listeners during the period.

    They're not dummies, but they are leaning toward duller and duller darts.

    If the company isn't pressed into conceding that it will shed net subs for the current quarter during tomorrow's conference call, don't expect Sirius XM to kid itself by projecting sequential gains."

    Touche, Rick. Retail sales definitely disappointed in Q4 so they didn't make 19.1 like I/they estimated. And given the poor auto sales so far this year I'll also have to concede your point that Q1 will lose net subs in Q1, but not much - probably back down to the 18.9 million range if auto sales hold the Q at the 9.1 million SAAR currently estimated. The good news as you already stated is that operating costs are showing the syngerigstic benefits from the merger (finally!), and even if they shed a few subs in Q1 the balance sheet should continue to improve.

    One note about the churn rate increase and take rate decrease: the poor economy surely played it's part in the changes, but these numbers (take rate particularly) are also affected by the penetration rate, which is still growing.

  • Report this Comment On March 11, 2009, at 9:19 PM, dcrawford36 wrote:

    Don't you just love the way all these parrots are in goose step with each other......

    " The company closed out the quarter with [just] 82,945 more subscribers.........".

    It's like a secret memo goes out and it says...."We're not calling it PORK anymore, we're calling EARMARKS".

    I wonder if the Chairman of Citadel Broadcasting or the CFO of CC Media Holdings would mind the concept of adding 82,945 "paying subscribers" in their last quarterly report.

    "just 82,945"

    Happy as a lark and paying monthly subscribers.

    Whether it's Burger King or "Commercial Free Radio Entertainment" people who want to "have it their way".....turns out their willing to do so.

    Only a Fool would refuse to acknowledge the paradigm shift occuring right under their noses, and not acknowledge who's in the better driving seat.

    When 19 million drops down to 14 million b/c of a bad economy, then maybe you'll have a report with substance.

  • Report this Comment On March 11, 2009, at 9:20 PM, dgpalmer2001 wrote:

    "Pro Forma revenue 'inched' 16% higher to $644.1 million"

    Inched? Are you kidding me? Inched means 0-5% . 16% should be described as "rose steadily", "increased", "jumped".

    Also, please find me another company that was able to add 82,000+ subscribers during the 4th quarter of last year. I think that speaks for itself.

    I'm not saying Siri/XM is in the best shape, but why butcher a clearly positive earnings report? Perhaps you're protecting yourself after so many negative articles recently that turned out to be false.

    This is a simple, typical example of some pundit reporting the numbers the way they want. Here's a tip aristotle - Find another job.

  • Report this Comment On March 12, 2009, at 1:10 AM, rollboy89 wrote:

    You know, it's amazing. has been bashing Sirius XM at every turn. Do a search for SIRI, and you will see stories like "The President's Plan to Destroy Sirius XM", "Is Sirius XM the Next Vonage?", and "Even Sirius Doesn't Know". Each article is filled with negative, doubtful predictions that simply haven't come true. In the meantime, shares of Sirius XM have nearly tripled, from $.06 to $.16. I think the most prudent advice for readers is to do the opposite of what an author recommends..

  • Report this Comment On March 12, 2009, at 10:03 AM, gettingit wrote:

    Rick, I am absolutely positive that there a million more comapnies that you can write about. Why the preoccupation with SIRI? Your grass roots campaign to kill the stock isn't working. You likely recommended it in the past and got burned, OK, we get it-let's move on. I have been reading Motley Fool for the last 9 years back to the days that they were recommending IOM(IOMEGA) and that turned into a disaster but you still have loyal readers.

    The obvious bashing lessens your credibility.

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