3 Answers from Sirius XM

It's hard to knock Sirius XM Radio (Nasdaq: SIRI  ) after this morning's fourth-quarter report.

The satellite-radio provider posted breakeven results during the quarter -- or a loss of $0.01 a share on an adjusted basis -- relative to analyst expectations of a deficit of $0.02 a share. Revenue grew 6% to $684 million, also ahead of Wall Street's target.

Cynics who fear that Sirius XM is a bloated sinkhole are advised to use a fork when wolfing down their helping of crow. The premium-radio giant came through with $185 million in free cash flow through all of 2009.

The stock opened slightly lower on the report, but that didn't owe to anything the company said or didn't say. The stock had soared 64% since the company pre-announced a healthy year-end subscriber tally and buoyant free cash flow projection.

I had three questions going into the report. Let's see whether they got addressed.

1. How are those Howard Stern negotiations coming along?
It didn't take long for Stern's contract to come up; the first analyst during the conference call's Q&A raised that point. Sirius XM CEO Mel Karmazin naturally didn't elaborate on Sirius XM's plans for Stern when his contract expires in December. He did point out that there are no contract provisions for a new deal to be in place by a certain point. In other words, this may very well go to the wire.

It's hard to quantify how losing Stern would affect the company. One of the reasons that Sirius XM's revenue grew, despite closing out 2009 with a lower subscriber count than it started (even though self-pay subs refreshingly rose last year), was the more than 1 million accounts paying for "best of" packages.

In other words, they are either Sirius or XM subscribers paying a premium to also hear select channels exclusive to the other platform. Sirius XM doesn't break the exact allegiances down, but a good chunk of them are probably XM users paying extra to hear Sirius' Stern.

2. How are those apps working out?
Despite the buzz behind last year's launch of an online streaming program through Apple's (Nasdaq: AAPL  ) App Store -- and more recently Research In Motion's (Nasdaq: RIMM  ) BlackBerry -- the apps never came up.

We may as well call this a non-event until Sirius XM indicates otherwise.

3. Will there be guidance for 2010?
The company's outlook for the year ahead is superb. It expects to close out the year with 500,000 more subscribers than it started. It also sees a 20% spike in adjusted operating income and the continuance of positive free cash flow.

It also expects revenue to clock in over $2.7 billion, but that's a low-balling joke. Even if the subscriber count was flat -- and average revenue per user, which has been trending higher, freezes at the current $10.92 a month -- the $684 million in fourth-quarter revenue would equal to an annual run rate of $2.736 billion. Oh, and that sum is suppressed, given that most of the net additions took place toward the tail end of the holiday quarter.

Sirius XM still has its challenges, including its pesky churn rate. However, its ability to dramatically shave operating expenses over the past year has turned a lottery ticket into a stock worthy of trading to the left of the decimal point.

Yes, it's still a slave to the auto industry, but its 60% penetration rate means that even if buyers bypass problematic Toyota (NYSE: TM  ) cars for Ford (NYSE: F  ) wheels, the satellite radio provider won't suffer too much. Sirius XM is everywhere.

We don't know what Liberty Media (Nasdaq: LCAPA  ) intends to do with its 40% stake, but it's in no rush to decide itself. Liberty's stake in Sirius XM actually now accounts for most of its market cap, so it's won't do anything to jeopardize its prized holding.

So investors shouldn't read too much into today's lack of ticker-tape euphoria. The past month baked those gains in, and Sirius XM is a better company that it was even a few weeks ago.

Why do you think the market didn't bid up Sirius XM's shares higher at the open? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (26)

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 February 25, 2010, at 5:46 PM, jimmylegg wrote:

    I am pretty sure I read breakeven, not negative 1Penny, vs negative 2 pennies...anything tho throw in the negative...

  • Report this Comment On February 25, 2010, at 6:03 PM, langco1 wrote:

    with the depression in the US now out of control and with no one running the country here are a few of the name bankruptcys for 2010...GM!chrysler,aig,hertz,sirius,riteaid,etrade,aol,moody's,blockbuster,street.com,sears,and palm...just a few!!

  • Report this Comment On February 25, 2010, at 6:17 PM, wanners wrote:

    Sirius posted a profit of $14.2 million, or less than 1 cent a share, compared with a year-earlier loss of $245.8 million, or 8 cents. Revenue grew 8.7% to $ 676.2 million.

    Analysts polled by Thomson Reuters had expected a 2-cent loss on revenue of $ 664 million.

  • Report this Comment On February 25, 2010, at 6:21 PM, wanners wrote:

    Sirius posted a profit of $14.2 million, or less than 1 cent a share, compared with a year-earlier loss of $245.8 million, or 8 cents. Revenue grew 8.7% to $ 676.2 million.

    Analysts polled by Thomson Reuters had expected a 2-cent loss on revenue of $ 664 million.

    Over 150 mil in free cash flow and 463 EBITDA......

    langco1, stop being a clown.

  • Report this Comment On February 25, 2010, at 6:22 PM, wanners wrote:

    Sorry for the double post. Having a bit of trouble with this site at the moment...

  • Report this Comment On February 25, 2010, at 6:38 PM, stockvoyeur wrote:

    The market in general is going sideways- so it's not really a surprise SIRI did not jump. After all- as an investment, it's a pure speculative high risk play. Nonetheless, I bought in today at $1.06 PPS and will watch and follow.

    In my view - the key recent milestone for the stock was breaking out of the $1.00 PPS range and todays earnings reports even if neutral are a positive. Add to the equation the Sirius receivers being added to new cars.

    I am guessing we might see $1.50 to $2.00 PPS in the next 18 months or less.

  • Report this Comment On February 26, 2010, at 10:02 AM, BTM2SEA wrote:

    Article in the Wall Street Journal today gives SIRI a valuation of .25. Jist of the story - Woe to investors that miss the hugh share dilution that is right around the corner.

  • Report this Comment On February 26, 2010, at 12:29 PM, langco1 wrote:

    sirius continues to survive only from the cash infushions of a large investor and will fail as soon as that ends.sirius is a bankruptcy waiting to happen and it will....

  • Report this Comment On February 26, 2010, at 8:18 PM, georcole wrote:

    @ Rick Aristotle Munarriz,

    I still find it funny that over the summer you had not one nice word to say about SIRI and all of a sudden, over the course of two or three weeks, you went totally bullish. I know this is old news, as you turned a few months ago. This is obviously a company that you follow closely, after all, you do write an article about them probably twice a week. If you follow it that closely and not much news came out, why did you suddenly turn? Due to what I consider a lack of morals by you in this regard, I refuse to rec your SIRI articles. You have written one or two others that I was happy with, and I rec'd them, but the more I think about it, the more I almost wish I hadn't rec'd those either. That would just be holding a grudge and be immature. I will leave the immature stuff to you.

    Have a great day, Sir.

    George

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