Looking good, Sirius XM Radio (Nasdaq: SIRI).
The satellite radio provider is serving up encouraging quarterly results this morning.
Revenue climbed 11% to $804.7 million, ahead of the $803.8 million that analysts were targeting. Earnings soared 38% to $107.8 million, matching Wall Street's expectations of $0.02 a share.
I had three questions before the report. Let's see if we got some answers.
1. Is the recent price hike scaring away new subscribers?
Sirius XM increased its base monthly rate for the satellite radio service in January. The going rate is now $14.49 a month, 12% ahead of its earlier take. This is the first time the company has tweaked its primary rate since its merger, and on the Sirius side it's actually the first base rate increase in the platform's history.
Would premium radio fans accept the modest increase?
It's a meaty question. For a truly scalable model, a successful implementation will translate into huge gains on the bottom line. If consumers balk, things will get ugly by forcing Sirius XM to either retreat on its hike or deal with shrinking subscriber numbers.
The early read is very encouraging.
Sirius XM tacked on 405,000 net additions during the first three months of the year, closing out the period with nearly 22.3 million activated radios. Sirius XM now expects to add 1.5 million more new accounts than it loses in 2012, a welcome bump from its earlier net addition target of 1.3 million subscribers.
Conversion rates -- the percentage of new-car buyers who continue paying after their free trials run out -- clocked in at 45%, a sequential improvement over the 44% rate scored during Sirius XM's holiday quarter last year.
I wasn't going to give the company's monthly churn rate the same kind of weight as the net additions and conversion rate because most of the service's users are still paying the older rate until their next billing cycle begins. However, CEO Mel Karmazin notes this morning that 35% of its self-pay customers are now paying the higher rate. In that sense, it's encouraging to see monthly turnover stick to 1.9%.
The 2.1% monthly churn that Sirius XM was projecting three months ago for all of 2012 now seems very unlikely. Customers are taking to the increase, and Karmazin is now looking for churn to clock in at 1.8% to 2% this year.
2. Can Sirius XM keep Howard Stern happy?
The market cheered when Sirius XM won a legal battle against Howard Stern when a judge dismissed a lawsuit that would have been dilutive to Sirius XM's already bloated share count if the company had to shell out additional stock awards.
Stern's camp moved to appeal the decision.
The situation didn't come up at all this morning. Karmazin pointed out during the meeting that Sirius XM's programming costs should continue to decline at the company, so it doesn't seem as if the company is going to try to appease its superstar with more money or strike any major new content deals.
Listeners may clamor for new marquee content or for clarity on the Stern situation, but it's hard to fix what isn't broken. Taking an indirect shot at Pandora (NYSE: P), Spotify, and all audio services offering premium plans, Karmazin rightfully points out that the company has more paying radio subscribers than all other players combined.
3. What's Liberty Media up to?
Armed with a 40% preferred share stake and a history of making moves, Liberty Media (Nasdaq: LMCA) moved to potentially take de facto control of the satellite radio giant.
The company was asked about Liberty Media's intentions with the petition, and Sirius XM rightfully asked the analyst to redirect the question to Liberty Media itself. The holding company hasn't made its intentions clear beyond asking for the ability to increase its control of Sirius XM.
Sirius XM opposes the petition, arguing that 40% is not the new 50%.
"We're not trying to be combative with Liberty," Karmazin says, but obviously doesn't want to yield control of the company to a minority stakeholder.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report reveals all.
