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Well done, Sirius XM Radio (Nasdaq: SIRI ) .
The satellite radio giant turned the corner -- in many different ways -- with this morning's third-quarter report. Since I lined up three questions for Sirius XM yesterday, it's only fair to come back with the mostly positive answers.
1. Where are the subs?
After back-to-back quarters of net subscriber defections to kick off the year, Sirius XM got back on track. It more than offset 1.5 million in cancellations with 1.6 million gross additions during the quarter. Sirius XM closed out the period with 18,515,730 subscribers, or 102,295 more than it had three months earlier.
Two months ago, I opened up the floor for predictions on the media company's account tally. I promised to crown a victor among the dozens of forecasts, and it certainly wasn't me.
I was expecting a net decline of 80,000 subs, well short of the 404,411 and 185,999 listeners Sirius XM lost during the first and second quarters, respectively. Despite the auto industry's "Cash for Clunkers" injection ramping up auto production lines, I figured that even more cancellations would pour in after recent rate hikes and the introduction of a new music royalty fee.
I was wrong, so who was right?
Satwaves.com's David "Newman" Phillips won the horseshoe match. His stab at 18,510,000 was off by a mere 5,730 listeners.
Phillips made his post earlier this week, so I should probably also hand out an honorary winner submitted closer to the time the article was actually published. Phillips nailed it -- no doubt about it -- but he also had the luxury of getting a clearer view of the economy in September and the robust carmaker revival that was hammered home with Ford's (NYSE: F ) blowout performance.
The closest of the predictions around the time the article was originally written in September was dcsilver, off by less than 20,000 bopping heads with his 18,535,500 target.
The most impressive part of the metric is that self-pay subs grew both sequentially and year-over-year. Sirius XM may have had more overall subscribers a year ago, but there are slightly more today that are actually paying beyond the free trial. To this end, churn and conversion rates may have weakened over last year but they are clear improvements to where Sirius XM was earlier this year.
You sucker-punched me, Sirius XM, but I kinda like the taste of blood going down my throat. Nice shot!
2. How is the bottom line holding up?
My September stab was closer on the income statement.
"Rate hikes and cost savings should deliver better top- and bottom-line results than analysts expect," I wrote at the time. "Wall Street expects Sirius XM to post a loss of $0.02 a share on a 1% year-over-year decline in revenue. I believe that Sirius XM will manage to marginally grow revenue."
Pro forma revenue grew 3% to $629.6 million, as new fees and upgrades to "best of" and streaming packages helped boost the average revenue per user. There are slightly fewer subs, but they're paying a little more.
When you grease the income statement with a refreshing 19% slide in cash operating expenses, a decent top line is transformed into an inspiring bottom line. If it wasn't for charges related to Sirius XM restructuring its debt at lower interest rates -- a good thing, obviously -- the radio star would have actually posted breakeven results. It's on that basis that Sirius XM smoked the pros basking in their targeted deficits.
Free cash flow clocked in at a positive $26.7 million, and Sirius XM sees good things in 2010. It is forecasting adjusted operating profits to grow 20% next year, on top of the "over" $400 million it is still looking to generate in 2009.
Shares outstanding ballooned to 3.6 billion, and that is before accounting for Liberty Capital's (Nasdaq: LCAPA ) 40% preferred share stake. This is going to be a factor as future profits get divided into a greater number of shares, but worrying about slicing up earnings is a good problem to have for a company that was on the brink of bankruptcy in February.
Sirius XM also expects to grow its subscriber count in 2010, and that's noteworthy. It abandoned providing subscriber guidance a year ago when its prospects soured. It's nice to see the swagger is back, Mel Karmazin.
3. How about them Apples?
Despite having a complete quarter on the market, Sirius XM was tightlipped about the actual performance of its official streaming app through Apple's (Nasdaq: AAPL ) App Store for iPhone and iPod touch owners. Karmazin preferred to discuss the recent debut of its SkyDock that is being sold at Apple stores. It is one of the cheapest receivers to make, since it relies on an iPhone or iPod touch to serve as the car-tethered unit's display module. It's also available at Best Buy (NYSE: BBY ) , Amazon.com (Nasdaq: AMZN ) , and RadioShack (NYSE: RSH ) -- essentially the places that matter.
Silence isn't necessarily a death sentence for the Apple app. Amazon hasn't provided hard metrics on its Kindle since its rollout two years ago, and no one doubts that the e-book reader is a winner. However, it's worth noting that Sirius XM's guidance for 2010 is based on 11.3 million cars being sold, along with Sirius XM's improving penetration as a factory-installed feature.
The SkyDock and the Sirius XM app are sexy, but this is still a company that is growing as auto buyers tire of terrestrial radio.
Keep on motoring, Karmazin.
What did you think of Sirius XM's report? Submit your thoughts in the comment box below.