Sirius XM Didn't Miss on the Bottom Line

Sirius XM Radio (NASDAQ: SIRI  ) is doing better than you probably think.

The satellite radio monopoly posted strong quarterly results this morning. Revenue climbed 12% to top $1 billion for the final quarter of 2013. Analysts didn't see Sirius XM's revenue hitting 10 digits until the second quarter of this new fiscal year.

Earnings clocked in at $0.01 a share -- shy of the $0.02 a share that the market was expecting -- but there were several unique one-time items weighing on the bottom-line results. Back out the net loss on the early retirement of debt and we would be at $0.02 a share. Back out the loss on derivatives and adjust the unusually chunky tax bite for a company with billions in net operating losses to carry forward and we would have a beat on the bottom line.

In short, don't believe the knee-jerk headlines that skim the surface to conclude that Sirius XM's profit fell short. It didn't. Just because Sirius XM doesn't spoon-feed the financial media with higher adjusted earnings by picking out the one-time items doesn't mean it didn't happen.

Move higher up the income statement and we find that operating income rose 15% -- once again outpacing top-line growth -- to reach $245.4 million. 

There are some other encouraging tidbits on the income statement. Subscriber acquisition costs as well as programming and content costs moved lower since 2012's holiday quarter. It's better than you may initially think once you divide that by the growing number of subscribers. Subscriber acquisition costs have fallen to $44 per gross addition, welcome math with average revenue per user inching higher.

Things aren't perfect. The monthly churn rate bumped up to 1.9%, and the conversion rate of folks paying for Sirius or XM once their free trial subscriptions ran out fell to 42%. Sirius XM's historical conversion rate has hovered around 44% to 46%. Sirius XM also didn't boost at least some aspects of its guidance for 2014. It is typically able to revise some of its metrics higher. Then again, given the soft U.S. auto sales in January that we heard about yesterday, being cautious makes sense.

It's the higher churn and the slumping conversion rates that will be more challenging to Sirius XM than the initial reaction to the $0.01 a share that was reported in earnings for the period. The fourth quarter was ultimately a beat, but now some problematic metrics will leave Sirius XM with more to prove when it reports again in three months.  

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  • Report this Comment On February 04, 2014, at 10:21 AM, sirifair6 wrote:

    Rick,

    I want to thank you for reminding people where to look and how strong siri's results turned out.

    For the first time in many years I am really please with the company results. Q4 revenue over $1B speaks volumes and confirms my previous statements that Meyer and co our low balling 2014 revenue guidance. Now, I have every reason to believe that 2014 revenue will beat even my optimistic outlook around $4.2B, let alone the company will show very strong profitability being at least a double of 2013.

    Other great pieces of news are the ARPU (average revenue per user) that climbed to $12.44 and SAC (subscriber acquisition costs) going to the lowest level ever in the history of the company to $44. I know that this is going to be a trend and would not be surprised to see ARPU at $12.60-$12.70 and SAC going down to $40 in 2014. And most importantly, fcf will be at a minimum at $1.1B or even higher depending on their borrowing costs for buybacks, if the company is left alone.

    To summarize, 2013 results bode extremely well for the future with no sat launch costs and very reasonable capex, no refinance costs, much lower interest payments, revenue increasing by $450M-$500M as I have been predicting for a long time, and self-pay subs well over 1.5M. If we add Agero's incremental revenue and future profits that will be doubling or tripling and contributing to up 30% fcf growth in the coming years we are looking at a stock to own. Sirius XM keeps proving that it is a cash machine. 2014 is on a firm track to demonstrate that.

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