Sirius Makes a Difference

In what may be its final quarter as a stand-alone company, Sirius (Nasdaq: SIRI  ) proved to be mightier than rival-gone-partner XM (Nasdaq: XMSR  ) . Remember last week's report out of XM, with the widening losses and bubbling subscriber acquisition costs? Scary stuff.

You didn't get that in this morning's report from Sirius. The company's net loss narrowed by 26% during the third quarter to $0.08 a share, while subscriber acquisition costs fell by 10% to $103 for each gross addition. (You can review last quarter's performance here.)

Sirius also landed more net new subscribers than XM for the eighth consecutive quarter. The company tacked on another 0.5 million listeners during the quarter, closing the gap with XM; it now watches over 7.7 million subscribers. Revenue rose by 45% to $241.8 million on the 50% jump in year-over-year subscriber count.

Is it a great showing by Sirius? Not necessarily. Shares outstanding continue to increase. There are now nearly 1.5 billion shares outstanding. That means the company's market cap continues to inch higher, even with its shares stuck in the mud. It also means there won't be much of a material impact on a per-share basis when Sirius finally turns the corner toward profitability.

No, Sirius isn't anywhere near being in the black, but the current quarter should be its second straight holiday quarter with positive free cash flow.

Other negatives? Well, ad revenue per subscriber continued to shrink. It was once as high as $0.60 per month, but has fallen all the way down to $0.39 per month. Sure, the attraction of satellite radio is the plethora of commercial-free music stations. However, one would expect that the non-music stations would have an easier time selling bigger ad deals to their growing subscriber base.

You also have the pain of mounting losses. Sirius now has an accumulated deficit of $4.2 billion. Like XM, its negative shareholder equity continues to widen.

If this seems like a bleak report, though, it's because you're not looking at the right line items. Expense categories like customer service are growing a lot slower than Sirius' top line. Some items, like satellite transmissions and engineering costs, actually dipped during the period. These savings are sweet now, but they'll be a rippling Wonka fountain of chocolaty goodness if XM and Sirius are allowed to combine.

XM and Sirius together now have more than 16.2 million subscribers. Forget the measly 0.2 million subscribers that WorldSpace (Nasdaq: WRSP  ) has signed up overseas. XM and Sirius together would watch over a user base that rivals the 16.3 million domestic users that satellite television giant DirecTV (NYSE: DTV  ) looks after. It would be far more than the 13.6 million subs that DISH Network parent EchoStar (Nasdaq: DISH  ) has under its belt.

Sure, satellite television is profitable and commands higher monthly bills, but programming costs are substantially cheaper in satellite radio.

So Sirius shareholders should definitely keep their fingers crossed over the next few weeks as the regulators come to a conclusion on the pending merger. Things will get better in a hurry, if that happens. If it doesn't? Well, at least Sirius keeps heading in the right direction, even if it will take longer to get there.

Other things to read before the wedding invitation arrives:


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