Sirius XM Radio (SIRI +0.00%) came through with another quarter of solid growth.
Revenue climbed 14% to $892.4 million, fueled by its most successful year in net subscriber additions since 2007 and a core rate price hike that boosted average revenue per user. Given the scalable nature of the model, the satellite radio giant's profitability was even sweeter. Net income soared 120% to $156.2 million, though that figure gets whittled all the way down to $0.02 a share once you divide it by the 6.6 billion fully diluted shares outstanding.
I had four questions heading into this morning's quarterly report. Let's see if we got some answers.
1. How are the important metrics holding up?
Since Sirius XM had already divulged some of the report's good news when it revealed tacking on 2 million net additions in 2012 last month, investors probably figured that there weren't going to be any unwelcome surprises.
If the subscribers are coming, the scalable model will work itself out with even healthier earnings, EBITDA, and free cash flow generation.
I was interested in some of the more satisfaction- and performance-related metrics, and Sirius XM actually held up great in all but one.
Monthly churn has been floating around 1.9% to 2% lately, and it clocked in at an encouraging 1.8% for the period. Sirius XM's conversion rate -- essentially the percentage of new vehicle buyers that become paying accounts after their free trials run out -- held steady at 44%.
There's a price to be paid for that. Customer service and billing costs are outpacing revenue by growing 23% over the past year. However, the retention efforts are necessary given last year's rate hike and clearly working.
The one disappointment was in seeing average revenue per user of $12.12 a month. Yes, that's far better than the $11.61 it was clocking in with during the 2011 holiday quarter, but it's a surprising sequential dip from the third quarter's $12.14 figure.
2. Is Interim CEO James Meyer a permanent CEO?
Nothing was made official as it pertains to Meyer sticking around forever, but he certainly seemed like someone who's getting comfortable wearing the CEO hat.
"The first question I usually get from investors is what should we expect from you and what's going to change at Sirius XM under your leadership," he said at one point during the call.
He went on to describe how he plans to stick to the company's focus of growing its self-pay subscribers with careful attention to cost controls.
It's the kind of comment made by someone who knows that it's his job to lose, and Liberty Media (LMCA +0.00%) would be nuts to try to change that now. Yes, Liberty Media now has roughly 50.2% of the company and majority control, but there's no point in fixing what isn't broken.
3. Why did it take MySXM so long to launch?
Sirius XM was late in rolling out the personalized radio option that would take on Pandora (P +0.00%).
The company didn't explain why MySXM took this long to roll into beta, but it's excited about its prospects.
MySXM lets streaming accounts build on the existing channels to deliver customized streams. In other words, it allows music fans to take deeper dives into genres by specifying different characteristics that they want to hear.
Pandora bulls will argue that their company has been doing this for years by building vetted play lists around a song or an artist, but we will soon find out if the public favors Sirius XM's approach.
4. What will Liberty Media do?
"There probably won't be a lot of color on this one," I suggested yesterday, and that was about right.
Sirius XM did reveal that it won't hold Liberty Media to the requirement to match it on share buybacks now that it has majority control, but the company did say that it will fulfill its authorization to spend $2 billion on buybacks. It didn't buy any of those shares during the fourth quarter.
Moving on
There is still plenty to like here.
There are now 50 million cars with satellite-equipped receivers, and that's just 20% of all registered vehicles. Sirius XM is now available in 68% of all new cars rolling off the assembly lines.
Do the math. As new cars replace old cars -- and we're looking at more than 15 million cars driving off showroom lots this year -- the market penetration of Sirius XM-accessible cars will continue. It will then be up to the company to reach out to those drivers, and it's already making headway there by offering previews to turn on dormant receivers and striking deals with thousands of used car resellers. Sirius XM is expecting 1.5 million in gross additions from the used-car market alone this year.
Yes, Sirius XM will bear watching this month. The Copyright Royalty Board has boosted its rate from 8% last year to 9% this year of Sirius XM's revenue to cover music rights, and Sirius XM kicked in with a music royalty fee to pass that on to consumers starting with this month's billing cycle.
However, if Sirius XM has been able to hold up well with last year's larger core rate increase, it should be able to weather this hike admirably well. The company did say this morning that average revenue per user should inch higher again at this point, so the good news for a company that recently hit four-year highs should keep coming.
