Source: Sirius XM.
Satellite radio keeps rocking. Sirius XM Holdings (SIRI -0.50%) posted healthy financial results on Thursday. Revenue climbed 9% to $1.09 billion in the fourth quarter. The top-line spurt was fueled primarily by a 7% uptick in self-pay subscribers, but it also helps that the average revenue per user has grown from $12.31 a month to $12.49 over the past year.
This is a scalable model given the high fixed costs, so a little gain on the top often trickles down into bigger gains at the other end of the income statement. Net income more than doubled to $143 million or $0.03 a share.
Analysts were holding out for a profit of just $0.02 a share on $1.08 billion in revenue so it was a beat all around. It was actually Sirius XM's first beat on the bottom line in more than a year. Profitability at Sirius XM is typically a small number given Sirius XM's gargantuan share count. However, a massive $2.5 billion spent on share buybacks last year and better-than-expected margins resulted in a rare but welcome earnings beat.
The strong report isn't really a surprise. Shares of Sirius XM shot higher four weeks earlier after announcing strong preliminary performance metrics for the quarter.
Sirius XM announced at the time that it wrapped up 2014 with 27.3 million subscribers, tacking on 1.75 million net new subscribers for the year. It also revealed that revenue, adjusted EBITDA, and free cash flow for 2014 would all exceed its previous guidance.
Sirius XM is in a good place. This isn't the same Sirius XM that was on the brink of filing for bankruptcy in 2009. You have to go all the way back to the end of 2010 to find the last time that Sirius XM has posted a quarterly deficit, according to S&P Capital IQ data. Thursday morning's positive report stretches its streak of profitable quarters to 16 periods.
Sirius XM has also posted sequential gains in subscribers in all but one quarter over the past four years. Despite the challenges of connected cars and smartphones that offer access to a growing array of free or cheaper audio entertainment options, Sirius XM continues to gain traction.
Customers are happy. Monthly churn is down to 1.8%, on the low end of its historical range. With gas prices low and the economy showing signs of life it isn't a surprise to see folks that sign up for satellite radio stick with it.
It's not a perfect report. Sirius XM's conversion rate has fallen to a new low of 40%. This means that just two of every five buyers of new cars are deciding to pay for Sirius XM after checking out the free trials provided by the automakers.
Sirius XM is reiterating its guidance for the year ahead. That isn't a surprise. The outlook was initiated just a few weeks ago. It's targeting 1.2 million net subscriber additions for all of 2015. That's less than the 1.75 million net additions it tacked on through 2014, but keep in mind that its initial guidance only called for adding 1.25 million net subscribers last year. Sirius XM has a knack for offering up conservative guidance that it can nudge higher as the year plays itself out.
The rest of its outlook calls for revenue of $4.4 billion, adjusted EBITDA of $1.6 billion, and free cash flow of $1.25 billion. That would represent a mere 6% gain on the top line and a historically modest 12% in adjusted EBITDA and free cash flow. That may not seem very exciting, but, again, consider that Sirius XM has more often than not juiced up its projections along the way.
It was a solid quarter by Sirius XM, but investors have known that this would be the case for four weeks.
