My, What Big Ears You Have, Sirius XM!

The crowd keeps growing at Sirius XM Radio (Nasdaq: SIRI  ) .

Inspired by an upbeat presentation at Liberty Capital's (Nasdaq: LCAPA  ) investor day on Friday, Lazard Capital's Barton Crockett has raised this year's subscriber forecast. Crockett now sees Sirius XM adding 1.383 million net new subscribers, to close out the year with 20.156 million accounts -- 220,000 subs ahead of its earlier prognosis. He's simply following Sirius XM's lead; the company raised its own subscriber guidance on Friday, and the premium radio star has been known to lowball lately.

That growth comes with a price -- significant subscriber acquisition costs -- so Lazard Capital's analyst is also slightly lowering his profit outlook. He now sees the company earning $0.02 a share this year, and $0.01 a share come 2011.

Crockett is maintaining his "buy" rating on the stock, making sure that he doesn't repeat the mistake made by fellow analyst David Joyce from Miller Tabak. Joyce downgraded the shares the day before Liberty Capital's conference last week, only to see Sirius XM pop on Friday, following word of the heartier subscriber tally. The stock has climbed 8% in the three trading days since Joyce's downgrade, and the shares hit a fresh 52-week high this morning.

Betting against Sirius XM has been dangerous for bears since Liberty Capital and EchoStar (Nasdaq: SATS  ) bid to bail out a nearly lifeless Sirius XM last year. Liberty Capital emerged as the company's sugar daddy -- hence Sirius's presence at its investor event -- and its infusion was just enough to get Sirius XM through a tricky refinancing patch last year.

Sirius XM is now profitable and growing, and the potential for premium radio remains still somewhat open-ended. Recent year-over-year weakness at Ford (NYSE: F  ) and rival automakers won't show up in Sirius XM's growth until next year, and healthy conversion rates and lower churn have helped to offset any potential downturn there.

The company faces real challenges and carries a lofty valuation. However, as long as Sirius XM keeps raising the bar -- and then clearing it with ease -- you won't want to be on the wrong side of that kind of momentum.

How big could the potential market for Sirius XM subscribers get? Share your thoughts in the comment box below.

Ford is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the companies in this story. 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 (5) | Recommend This Article (6)

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  • Report this Comment On October 05, 2010, at 2:58 PM, doubting wrote:

    Rick,

    Another timely piece of yours. You appear to be one of the few who did take a hard look at the company and its stock sometime ago and changed the course based on facts rather than on negative inertia. I agree that siri has a number of challenges to deal with. However, I would treat these challenges as pleasant ones because it is obvious that the compnay is not longer hanging on a cliff but rather climbing with confidence to the peak that they can now see. The fact that siri will end over 1.3M new customers (I expect it to be at least 1.5M knowing Mel's penchant to lowball) in poor economy of 2010 speaks for itself. You can project very strong results in improving economy in 2011, in particular in the retail market when 2.0 hits the market at the end of 2011. Once 2011 is over, the last satellite will have been launched and a significant chunk of debt will have been paid. Starting 2012, capex will be minimal for 5-6 years, part of the debt will be most likely very beneficially refinanced, and we will see hundreds of millions and then small billions of cash flow. By 2015, I see siri valuation at about 50B+ due to its phenomenal position on the market with 30B+ subs and most likely no debt. How do you like this picture?

  • Report this Comment On October 05, 2010, at 5:22 PM, ItAintCool wrote:

    I don't understand why everybody who downgrades SIRI (or stays neutral) claims that increased subscribers = increased subscriber acquisition costs. Why? Mel said that SAC has not increased with the gain in subscribers. OK, maybe he's lying, but where's the proof?

    Is there something I'm missing when the CEO of the company says it isn't increasing but some analyst remains insistent that it is?

  • Report this Comment On October 05, 2010, at 11:57 PM, dchohan wrote:

    Not Good

  • Report this Comment On October 06, 2010, at 11:15 PM, rhobytalltree wrote:

    We have Sirius radio in our '08 Prius. Its kept us company on many trips these last 3 yrs. We hope the future is good for Sirius XM - so the pleasure we get from listening to their stations will be here in the future. It is so nice to be able to listen to the same channel from Coast to Coast.....!

  • Report this Comment On October 07, 2010, at 4:50 PM, multi007 wrote:

    I wonder how the SIRI "lifetime" subscription of $500 for the life of your vehicle (with the ability to transfer it up to 3 times to new vehicles) would factor in?

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