Did Sirius XM Live Up to Expectations in 2012?

It's been another year of stellar growth and myth-debunking for Sirius XM Radio (Nasdaq: SIRI  ) .

The satellite radio provider is wrapping up its fourth consecutive year of monstrous capital appreciation. The stock has been nearly a 25-bagger over the past four years, but how did 2012 really play out?

A year ago, I profiled four things that Sirius XM must do in 2012. I already went out on a limb with my predictions for 2013. Since a lot of us are reflecting back on the year that was, I may as well take a look at how Sirius XM panned out in those four areas.

1. Sirius XM's rate hike must be well-received
After diligently waiting three years and change since the merger between Sirius and XM, the media giant was finally able to test its pricing elasticity in 2012.

Free to prop its basic rate higher, Sirius XM initiated a 12% rate increase in January.

Now, we've seen how consumers can freak out over increases.

Netflix (Nasdaq: NFLX  ) was slammed during the summer of last year after imposing a new pricing policy, which raised prices as much as 60% on some of its users. The end result was a pronounced drop in subscribers during the third quarter of that year, before bouncing back two quarters later.

Not everyone would be paying the new $14.49 price right away, but even Sirius XM was concerned. Its original guidance called for monthly churn to top 2% and for the company to close out the year with 1.3 million net subscriber additions. It had closed out 2011 with 1.7 million net additions.

Well, customers didn't flinch.

The monthly turnover rate stayed below 2%, and Sirius XM is likely to close out the year with more than last year's 1.7 million net additions.

There is a limit to how high Sirius XM can go, but thankfully things worked out far better on that front than anyone could have imagined.

2. Sirius XM 2.0 has to be better
Here's an area where Sirius XM did fall short. There was plenty of buzz behind Sirius XM 2.0, and the new receivers that would be able to listen to roughly two dozen extra channels.

Despite the hype, the original Edge and Android-powered Lynx receivers didn't seem to turn a lot of heads after their rollouts in late 2011. Incorporating Sirius XM 2.0 into Chrysler cars this summer also didn't generate a whole lot of excitement.

Sirius XM 2.0 wasn't much of a differentiator at all, and Sirius XM has turned its attention in 2012 to streaming initiatives instead.

3. Satellite radio will have to keep the streaming phenomenon at bay
The success of Pandora (NYSE: P  ) -- at least as a streaming service -- is something that Sirius XM couldn't ignore.

Too many automakers are now making it easier for anyone with a smartphone to stream audio through their dashboard entertainment systems, often through wire-free Bluetooth and with controls right on the steering wheel.

"Pulling an anti-Netflix -- making its stand-alone mobile streaming an included feature for its receiver-based service -- may actually improve Sirius XM's chances to keep Pandora and iHeartRadio from overtaking the dashboard," I wrote at the time.

It didn't happen, and for now it doesn't seem necessary.

Yes, Pandora's wildly popular. Despite its moribund share price, Pandora had 62.4 million active listeners at the end of November, 45% ahead of where it was a year earlier. Listener hours have soared 58% to 1.27 billion last month. Sirius XM isn't growing nearly as fast, and one always has to wonder if it's just terrestrial radio or Apple's (Nasdaq: AAPL  ) iTunes that's been victimized by Pandora's success. After all, there are only so many sets of ears out there to go around.

However, Sirius XM's ability to not only grow in 2012 but to also accelerate its growth rate should put any near-term fears to rest.

Things may get interesting in 2013 if Apple does come through with its rumored streaming service, but for now Sirius XM has been able to thrive alongside the streaming success at Pandora, iHeartRadio, and other popular applications.

4. Sort out Liberty's intentions
There were plenty of question marks surrounding the 40% preferred share stake that John Malone's Liberty Media (Nasdaq: LMCA  ) had. The restrictions would ease in early 2012, and analysts weren't sure if Malone would stay pat, cash out, or build up his stake.

Well, we know where that stands now. Malone has gone to build up Liberty Media's effective stake in Sirius XM to 49.8%, a move that may have helped push shares of the satellite radio provider nicely higher in 2012.

Once he receives regulatory clearance, the likely path is to spin off that majority stake to investors through a tax-advantaged transaction. Sirius XM has armed itself with the authorization to buy back a ton of stock if it does get to that point.

In short, Liberty's intentions are clearer, though 2013 leaves us with the mystery of which way Sirius XM's shares will go if the spinoff goes through as expected.

In the end, Sirius XM came through 2012 with far healthier fundamentals than it started. After four years of market-thumping capital gains, skeptics are the ones that should be suffering a crisis of confidence.

Satrad in 2013?
Despite Sirius XM being one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in our brand-new premium report. To get started, just click here now.


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