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The good news is that Sirius XM Radio (Nasdaq: SIRI ) is profitable, back to year-over-year subscriber growth, and making inroads into extending its debt maturities as it lowers its interest rates.
The bad news is that this morning's respectable first-quarter report didn't come stapled to raised guidance. The stock was trading substantially lower when the satellite-radio giant initially issued its 2010 outlook, so sticking to those targets in an improving automotive environment is a bit of a letdown.
The quarter itself was solid. Revenue rose 11% to $670.6 million. It reversed a year ago deficit with a profit of $0.01 a share, edging ahead of analysts that were braced for breakeven results.
The fully diluted shares outstanding ballooned to 6.3 billion, and that is the "curse" of profitability as Liberty Capital's (Nasdaq: LCAPA ) 40% preferred share stake is now baked into the results.
Sirius XM now has more fully diluted shares out there than ExxonMobil and Apple -- two of the country's three most valuable companies -- combined! This isn't going to change, since CEO Mel Karmazin kicked off this morning's conference call by announcing that the company has no intention of executing a reverse split now that it's back in compliance with NASDAQ OMX Group's (Nasdaq: NDAQ ) listing requirements.
Dividing net income into a gargantuan number of shares will keep results binary -- a bunch of $0.00 and $0.01 quarters on a per share basis -- in the near term, but at least the company is profitable. The satrad star squarely in the black also means that it can begin tapping into its billions in tax-loss carryforwards to offset potential taxes over the next several years.
Shares opened 6% lower after the report, but it's important to single out the positives.
- Advertising revenue is sharply higher. It's a small sliver of the top-line pie, but it was always perplexing to see advertising revenue shrink at Sirius XM, since Karmazin cut his terrestrial teeth at CBS where radio ads were the key revenue driver.
- Average revenue per user was up nicely, though primarily the result of the music royalty fee that was tacked on to many accounts last summer.
- There was year-over-year improvement in churn, conversion rates, and per subscriber acquisition costs.
The near term should also be cheery. Karmazin noted during the call that Sirius XM recently hit a new high in subscriber count (topping the 19 million it had five quarters ago). The positive momentum leads one to wonder why the company is sticking to revenue guidance for 2010 that is simply a run rate of the first quarter's showing. Its target of closing out the year with "over" 500,000 more subscribers than it started also appears dreadfully low, since it already nabbed more than a third of that during the freshman quarter.
Packing an enterprise value of roughly $10 billion, there will naturally be valuation concerns at this point. However, the solid and sustainable quarter should also silence the bears who feel that Sirius XM is toast.
Sirius XM is in the black -- and today's market action may be blue -- but there are lots of other ugly colors in the spectrum that no longer apply here.
What did you think about Sirius XM's first quarter? Share your thoughts in the comment box below.