Sirius XM Is Black and Blue

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.

Nasdaq OMX Group is a Motley Fool Inside Value selection. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a write covered calls position on Nasdaq OMX Group. Try any of our Foolish newsletters today, free for 30 days.

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 (4) | Recommend This Article (11)

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 May 04, 2010, at 2:06 PM, Br0oklyn wrote:

    I Still Would Like To See Insider Buying To Make Things More Interesting.

  • Report this Comment On May 04, 2010, at 5:22 PM, WoodyDog1400 wrote:

    Reverse Split, only way to get this stock moving beyond $1.25, there are just to many outstanding shares...not enough institional buyers

  • Report this Comment On May 04, 2010, at 7:05 PM, Drakon1976 wrote:

    Looks like the shorts jumped back in today.......welcome back.......ready to get burned again cause I'm accumulating....LMAO

  • Report this Comment On May 07, 2010, at 4:02 PM, mrwx wrote:

    While I think they make a profit in the near future, I would consider XM to be a risky bet given that with the increase in apps for mobile devices (Pandora). I know I am moving away from my XM subscription to toward these services.

    Also, XM's customer service needs major imrpovement.

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