It's hard to knock Sirius XM Radio (Nasdaq: SIRI) after this morning's fourth-quarter report.
The satellite-radio provider posted breakeven results during the quarter -- or a loss of $0.01 a share on an adjusted basis -- relative to analyst expectations of a deficit of $0.02 a share. Revenue grew 6% to $684 million, also ahead of Wall Street's target.
Cynics who fear that Sirius XM is a bloated sinkhole are advised to use a fork when wolfing down their helping of crow. The premium-radio giant came through with $185 million in free cash flow through all of 2009.
The stock opened slightly lower on the report, but that didn't owe to anything the company said or didn't say. The stock had soared 64% since the company pre-announced a healthy year-end subscriber tally and buoyant free cash flow projection.
I had three questions going into the report. Let's see whether they got addressed.
1. How are those Howard Stern negotiations coming along?
It didn't take long for Stern's contract to come up; the first analyst during the conference call's Q&A raised that point. Sirius XM CEO Mel Karmazin naturally didn't elaborate on Sirius XM's plans for Stern when his contract expires in December. He did point out that there are no contract provisions for a new deal to be in place by a certain point. In other words, this may very well go to the wire.
It's hard to quantify how losing Stern would affect the company. One of the reasons that Sirius XM's revenue grew, despite closing out 2009 with a lower subscriber count than it started (even though self-pay subs refreshingly rose last year), was the more than 1 million accounts paying for "best of" packages.
In other words, they are either Sirius or XM subscribers paying a premium to also hear select channels exclusive to the other platform. Sirius XM doesn't break the exact allegiances down, but a good chunk of them are probably XM users paying extra to hear Sirius' Stern.
2. How are those apps working out?
Despite the buzz behind last year's launch of an online streaming program through Apple's (Nasdaq: AAPL) App Store -- and more recently Research In Motion's (Nasdaq: RIMM) BlackBerry -- the apps never came up.
We may as well call this a non-event until Sirius XM indicates otherwise.
3. Will there be guidance for 2010?
The company's outlook for the year ahead is superb. It expects to close out the year with 500,000 more subscribers than it started. It also sees a 20% spike in adjusted operating income and the continuance of positive free cash flow.
It also expects revenue to clock in over $2.7 billion, but that's a low-balling joke. Even if the subscriber count was flat -- and average revenue per user, which has been trending higher, freezes at the current $10.92 a month -- the $684 million in fourth-quarter revenue would equal to an annual run rate of $2.736 billion. Oh, and that sum is suppressed, given that most of the net additions took place toward the tail end of the holiday quarter.
Sirius XM still has its challenges, including its pesky churn rate. However, its ability to dramatically shave operating expenses over the past year has turned a lottery ticket into a stock worthy of trading to the left of the decimal point.
Yes, it's still a slave to the auto industry, but its 60% penetration rate means that even if buyers bypass problematic Toyota (NYSE: TM) cars for Ford (NYSE: F) wheels, the satellite radio provider won't suffer too much. Sirius XM is everywhere.
We don't know what Liberty Media (Nasdaq: LCAPA) intends to do with its 40% stake, but it's in no rush to decide itself. Liberty's stake in Sirius XM actually now accounts for most of its market cap, so it's won't do anything to jeopardize its prized holding.
So investors shouldn't read too much into today's lack of ticker-tape euphoria. The past month baked those gains in, and Sirius XM is a better company that it was even a few weeks ago.
Why do you think the market didn't bid up Sirius XM's shares higher at the open? Share your thoughts in the comment box below.
