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Another week, another new multiyear high for the satellite-radio provider. Shares of Sirius XM Radio (NASDAQ: SIRI ) hit a four-year peak of $3.19 on Thursday. The stock's nearly 2% ascent on the week easily beat the market.
It was a busy week on the news front for Sirius and related companies. Sirius XM itself revealed that it closed out 2012 with a better-than-expected 2 million in net subscriber additions, initiating its guidance for 2013 along the way. Pandora (NYSE: P ) also put out impressive results for December. Sirius XM CFO David Frear spoke at an investor conference in Las Vegas, coinciding with Consumer Electronics Show. The number of Sirius XM shares sold short declined. And finally Toyota (NYSE: TM ) expanded the availability of Sirius XM receivers as a factory-installed feature on new cars.
Let's take a closer look.
The 2-million-sub march
There's no denying that 2012 was a great year for Sirius XM, and not just because the stock trounced the market by soaring 59% on the year. Despite last January's rate increase that boosted the basic monthly rate by 12%, the media giant closed out the year with 23.9 million subscribers. Adding 2 million users is impressive, especially since the satellite-radio specialist projected only 1.3 million in net additions earlier in the year.
This is one of the more scalable models on the planet. A lot of Sirius XM's costs are fixed, so aside from revenue-based royalties and servicing expenses, every incremental subscriber is more lucrative than the one who came before.
The stage is set for another strong year in 2013. Sirius XM initiated guidance for the year ahead on Wednesday.
- Revenue will be more than $3.7 billion.
- Adjusted EBITDA should surpass $1.1 billion.
- Free cash flow will be near $900 million.
- Sirius XM is targeting 1.4 million net subscriber additions this year.
Some may call that outlook disappointing. Analysts were already targeting more than $3.8 billion in revenue for 2013, and 1.4 million net additions seems like a big step down from 2012's strong run. However, Sirius XM has been conservative in the past. It also bears pointing out that while Sirius XM is looking to close out 2013 with just 25.3 million subscribers, it's also forecasting a 1.6 million gain in self-pay net subscriber additions -- the same number for that significant money-making metric as 2012.
Panning for Pandora
Pandora, the leading music-discovery service, continues to grow at a heady clip -- and this is important for Sirius XM shareholders, because the company plans to roll out a Pandora-like streaming service shortly.
Pandora had 67.1 million active listeners in December, 41% ahead of where it was a year earlier. It also saw its listener hours spike 54% to 1.39 billion. It's encouraging to see usage continue to grow faster than users. That means the average active listener is tuning in more often.
With both Pandora and Sirius XM continuing to put out impressive growth, it's safe to say that one's growth isn't coming at the expense of the other.
Don't Frear the reaper
David Frear, Sirius XM's executive VP and CFO, presented at the Citi Global Internet, Media, and Telecommunications Conference on Wednesday morning. The presentation didn't offer any major surprises, and XM's stock inched lower on Wednesday. However, Frear emphasized the bullish upside that investors already know.
The push to beef up XM's digital offerings is part of the larger strategy to "capture you in the car and then allow you to extend to other platforms," he said. In other words, Sirius XM wants to be your one-stop shop for premium audio entertainment.
Frear also touched on the buyback authorization. At current prices, a repurchase of $2 billion worth of stock would retire roughly 600 million shares. Don't underestimate the benefit of retiring nearly 10% of the fully diluted shares outstanding. As Frear points out, the 20% projected gain in free cash would become 40% on a per-share basis if it were able to complete the buyback sooner rather than later.
Short people, revisited
There were 355.4 million shares of Sirius XM shorted at the end of December. That's a big number, yet it's lower than the 2012 high of 370.4 million bearish bets in the exchange's previous reading on Dec. 14.
Worrywarts may feel that it's safe to short Sirius XM now that Liberty Media (NASDAQ: STRZA ) has 49.8% of the company -- with little buying upside now to get it up to a 50.1% majority stake -- but it's never easy to tell what Liberty's John Malone will do. Betting against Sirius XM at a time when the fundamentals improve on a quarterly basis can be hazardous.
Toyota turned heads when it introduced Entune two years ago during that year's CES conference. A major component was a touchscreen that would load with six default icons. Bing searches and online dining reservations were a nice touch, but Sirius XM investors had to be worried that two of the six icons were for Pandora and Clear Channel's (NASDAQOTH: CCMO ) iHeartRadio. Anyone with a smartphone and an Entune-equipped car could seamlessly stream Pandora or iHeartRadio's hundreds of music stations through the car audio system.
Well, Toyota hasn't forgotten about Sirius XM. The Japanese automaking giant is making satellite radio a standard feature across most of Toyota's multimedia systems -- including all cars featuring Entune.
It may seem as if Sirius XM is available in every new car, but it's not. Every deal matters.
Turning up the volume
Even though Sirius XM has been one of the market's biggest winners since bottoming out three years ago, there's 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.