I had four questions before Sirius XM Radio's (NASDAQ:SIRI) second-quarter earnings release this morning. I now have the answers to most of them -- though not all of them.
Results were in line with expectations. Revenue inched 1% higher to $607.8 million. Cutting $187 million in quarterly expenses since last year helped deliver a narrower net loss of $0.01 a share before charges. Analysts nailed the top and bottom lines, for a change.
Let's delve deeper by checking out the responses, with other fiscal morsels from the report sprinkled along the way.
1. How many net subscribers did Sirius XM shed during the quarter?
After hearing about the net subscriber loss of 404,422 listeners during the first quarter, analysts were rightfully nervous about which way radio fans were heading.
"Losing 100,000 or so subscribers would be applause-worthy," I wrote at the time. "Losing as many listeners as it did during the first quarter will bring out the boo birds."
Well, applause, applause. Sirius XM closed out the quarter with 18.4 million subscribers, just 185,999 fewer listeners than it had accounted for three months earlier. Retail-level subscribers continue to leave -- satellite radio has been a hard sell through consumer electronics chains and consumer-direct channels for more than a year -- but things are picking up on the car lot. Net subscribers through factory-installed receivers inched higher, after retreating during the first quarter.
The company abandoned its practice of providing guidance on subscriber counts when its rolls peaked late last year. It's not dusting off that crystal ball now. However, it has a shot at turning things around in the third quarter if the "cash for clunkers" program delivers more new fans than the recently instituted $1.98-a-month music royalty fee scares away.
2. Are conversion rates still shrinking?
One of the more underrated metrics in picking apart Sirius XM's prospects is its conversion rate. I'm not talking about the company's penetration rate, because it perpetually expands its reach of new cars sold with factory-installed receivers.
The real meat is in how many of the people who drive new cars off the lot ultimately subscribe to the service after their free trials expire. This has been trending lower lately, and hit a new low of 44.4% for the second quarter. In other words, just 444 of every 1,000 buyers of cars with satellite radios decided to activate their receivers as paying customers. A year ago, the conversion rate was a healthier 50.6%.
The crummy economy is playing a part. Recent rate hikes aren't helping. However, we're also digging deeper into the mainstream, and these are unlikely to be the hard-core early adopters who log the kind of driving miles to justify a satellite radio subscription.
The grim conversions are offset by the continually decreasing subscriber acquisition costs. The company is spending just $57 on each gross subscriber addition, less than the $71 average during last year's second quarter. The company may have to work harder to smoke out new leads, but they are getting cheaper to find.
3. When will the ad revenues inch higher?
One of the bigger shocks here under CEO Mel Karmazin -- an old-school terrestrial radio guy from his days at CBS (NYSE:CBS) when it was under Viacom's (NYSE:VIA) wing -- is that Sirius XM hasn't been able to generate more advertising revenue.
Sure, commercial-free music is a major draw of satellite radio, but Sirius XM also prides itself on its ad-stocked talk channels. Well, advertising revenue fell a sharp 33% even though Sirius XM's subscriber count has only dropped a modest 1% over the past year.
Ad rates are down all over, but it's not that dire.
4. How are the App Store subscribers coming along?
Companies have a way of hyping a new product, then keeping mum on its actual take rate. Amazon.com (NASDAQ:AMZN) has been singing the Kindle e-book reader's praises for two years, but it has never revealed actual sales figures.
You can throw Sirius XM's entry into Apple's (NASDAQ:AAPL) App Store into that camp. The company was predictably tight-lipped about its premium streaming subscriptions tally. At least it was kind enough to let the helium out when it noted that "the number should not be a significant number" during this morning's conference call.
Average revenue per user is up to $10.66 a month, from $10.55 a year earlier, but that is likely the result of moving more "best of" premium packages or March's increase for secondary receivers rather than a sign of success at the App Store.
Calling a reverse play
The name Warren Buffett came up during the call, because company officials called out Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) stock price. Yes, that's as odd as it sounds. An analyst asked about the pending reverse stock split. Now that the exchange has reissued its warning to Sirius XM, the company risks being delisted if it can't get its share price above the $1.00 mark over the next few months.
A reverse stock split is the cheesy way out, and Sirius XM is protesting the practice itself. The company believes that market cap should play a larger role than share price in whether a company is listed. That is when Buffett was called out, with the suggestion that Berkshire's Class A shares, priced at $104,800 apiece, are less shareholder-friendly than Sirius XM fetching pocket change. Sirius XM has a point about the market cap. I'm not sure what picking on Berkshire's long-term capital appreciation will accomplish.
Then again, something tells me that Buffett wasn't listening. He seems to be more in the mold of the 55.6% of new car buyers who aren't paying for satellite radio.
More news than static on Sirius XM:
- Why Cash for Clunkers Won't Save the Economy
- Here's Your Shot to Score Big
- Sirius Keeps Its Hands on the Wheel
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