Earnings Preview : Sirius XM Radio Inc. (NASDAQ: SIRI) Second Quarter 2010
Tuesday, August 03, 2021 10:16 AM

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Sirius XM Radio Inc. (NASDAQ: SIRI) is scheduled to release its Q2 2010 results after the market closes on August 3, 2010. SIRIUS XM continues to project net subscriber additions of over 500,000 for the full year. The company continues to expect to record over $2.7 billion of pro forma revenue in 2010 and to achieve pro forma adjusted income from operations of approximately $550 million. Free cash flow is expected to remain positive for the full year.
 
Sirius Satellite Radio is building a digital satellite radio system that will broadcast up to 100 channels of music and entertainment programming to motorists throughout the continental United States.
 
As for the Q1 of 2010, SIRIUS XM Radio reported financial and operating results, including $670.6 million in pro forma revenue, up 11% over first quarter 2009 pro forma revenue of $605.5 million; and $157.8 million in first quarter 2010 pro forma adjusted income from operations, an increase of 45% over first quarter 2009 pro forma adjusted income from operations of $108.8 million. SIRIUS XM ended first quarter 2010 with 18,944,199 subscribers, up 344,765 from 18,599,434 subscribers at the end of first quarter 2009. Net subscriber additions of 171,441 in the first quarter of 2010 improved significantly from a loss of 404,422 subscribers in the first quarter of 2009. In the first quarter 2010, pro forma average revenue per subscriber (ARPU), which includes the U.S. Music Royalty Fee, was $11.48, an increase of 10% from pro forma ARPU of $10.48 in the first quarter 2009. The company's self-pay monthly customer churn rate was 2.0% in the first quarter 2010, as compared with self-pay monthly customer churn of 2.2% in the first quarter 2009. Free cash flow in the first quarter 2010 was ($127.2) million compared to ($3.6) million in the first quarter of 2009. Net Income plus non cash operating activities increased by $43.7 million, or 89%, to $93 million in the first quarter of 2010 from $49.3 million in the first quarter of 2009.
 
Analysts' estimates for Q2 2010 range from a low of -$0.01 to a high of $0.00, compared to a consensus estimate of -$0.00, with number of estimates being 6 and the co-efficient variance -154.92. An increase in domestic new vehicle sales would likely provide a tailwind for SIRI's subscriber, revenue and EBITDA growth. Morgan Stanley's economists forecast 11.8mm new vehicle sales in 2010 and 12.4mm in 2011.  Sirius should continue to grow its subscriber penetration of households and vehicles in the US as vehicle sales reaccelerate given the availability of its services in ~60% of new automobiles sold. Sirius estimates that there are 7-8mm cars in the US with satellite radios that are not currently receiving services. As cars are re-sold, SIRI has an opportunity to gain subscribers with relatively low acquisition costs. As cars are re-sold, SIRI has an opportunity to gain subscribers with relatively low acquisition costs. SIRI has signed agreements with several OEMs to market its services in certified pre-owned vehicles, which may serve as an effective way to expand its sub base. Sirius XM has offered internet radio services since '06 and more recently provided these services to mobile devices. The mass penetration of these devices could help SIRI's growth. However, Growing penetration of smartphones and increasing mobile broadband speeds have increased the availability of internet radio services such as Pandora and SIRI has over $3 bn of debt and is levered at 4.5-5.0x. Therefore, modest sub losses could lead to negative FCF. Total revenue for Q2 2010 is expected to come in at $663.6 million, with the operating income expected to reach $63.3 million and a net loss of $3.9 million. EPS is likely to be -$0.0.
 
The stock closed at $1.05, up 1.05% on August 2, 2021 and most analysts' rate the stock as a relative Overweight with an average price target of $1.30. After completing the Sirius/ XM merger, a refinancing of its balance sheet, and weathering the recent recession, Sirius XM has emerged as a more stable company with several key opportunities. However, the company will likely continue to experience volatility in its share price as its ultimate free cash flow outlook becomes clearer.
 

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