Updated from 10:36 a.m. EST to provide analyst comments in the sixth paragraph.
NEW YORK ( TheStreet) -- Despite announcing record revenue, Sirius XM (SIRI - Get Report) continues to hold onto its cash, potentially paving the way for a future battle with majority shareholder Liberty Media (LMCA - Get Report).
Liberty Media already owns 40% of Sirius as a result of a $530 million loan it provided the satellite radio company in 2009, and has been looking for a way to gain majority control of Sirius, though it's barred from additional purchases.
With Sirius having $747 million in cash at the end of the quarter and approximately $700 million in free cash flow, investors were hoping for a return of cash, either via a dividend or a buyback. CEO Mel Karmazin spoke of retiring debt at favorable terms, not giving back cash, which would increase Liberty's stake.Karmazin did speak of returning cash, but said the board of directors has not announced anything yet. "We believe a good use of our cash is to return capital to shareholders," he said on the conference call. "We've talked about acquisitions as something we would consider, but there's nothing we're seeing out there we feel anxious about acquiring." With nearly one-third of Sirius' record 22.3 million subscribers paying the higher monthly prices, the company's free cash flow will continue to rise. Eventually Sirius will have to do something with its cash, but that may not be this year, according to one analyst. Aaron Watts, analyst at Deutsche Bank, believes Sirius is likely to refinance remaining debt as soon as economically feasible, having repurchased $129.6 million worth of debt since the start of 2012. "Further, we anticipate the board will eventually consider returning capital to shareholders with SIRI hovering around 3x leverage," Watts explained, in a research note. He rates Sirius shares "hold." Sirius has a lot of flexibility with its balance sheet, but Karmazin and CFO David Frear are very mindful of the Liberty stake, and they may be playing a game with Liberty, says Wunderlich Securities analyst Matthew Harrigan. "Liberty would like them to return some cash to shareholders, but I think Mel and David are going to be cautious on returning cash. I think share repurchases are more of a 2013 event than 2012," Harrigan told TheStreet. He rates Sirius "hold" with a $2 price target.