RealMoney Silver - Sirius Looks to Move Higher on Merger OK

Sirius Looks to Move Higher on Merger OK
By Jay Somaney
RealMoney.com Contributor
10/30/2007 11:04 AM EDT

Updated from Oct. 29 at 8:55 p.m. EDT

Sirius (SIRI) reported numbers this morning that were mostly better than expected. Revenues came in at $241.8 million and the company lost 8 cents a share, in-line with expectations.

The company reaffirmed its prior guidance of 8 million-plus new subscribers.

Sales and marketing expenses were $29.5 million, which was lower than most estimates and down from $31 million in the year ago quarter.

SIRI added 525,000 net subscribers in the quarter, well ahead of estimates in the 420,000 range. Gross subscriber additions were 999,000 also ahead of the average estimated gross additions of 920,000. Most of the gains came in the OEM area and retail saw 61,000 net additions, pretty much in-line with expectations.

ARPU was $10.32 in the September quarter, which was good but slightly lower than the last year's ARPU of $10.68.

Cash burn in the quarter was $67 million better than estimates of $70-$75 million.

On the call the company said there was a strong possibility that the merger will go through and management cited the fact that several congressmen and senators signed a letter urging the FCC to let the merger go through. The management stated that they expect the merger with XMSR to close by year-end 2007.

Management also stated that they expect retail sales in the Holiday Season should pick up briskly.

All in all, like I said, the numbers were nothing to write home about, but as we near the Nov. 13 voting date, shares of SIRI could trade higher.

Preview: So About That Merger

Sirius Satellite will come out with results for its September quarter tomorrow morning before the opening bell, and anything remotely positive could boost the stock.

The Street is expecting a loss of 8 cents a share on revenue of $244.3 million for the September quarter. Consensus estimates for the December quarter are a loss of 23 cents a share on revenues of $268 million, the higher per-share expected loss due to special holiday promotions and sales and rebates. For FY08, current consensus is a loss of 27 cents a share on revenues of $1.27 billion.

The Street ,expects gross subscriber additions of 920,000 in the quarter with net additions of 420,000 and a churn of 2.3% or so and an EBITDA loss of $55 million. Total ARPU (average revenue/user) is expected to come in at $11.15.

SIRI and XM Satellite (XMSR) have agreed to merge with an expected shareholder vote of both the companies on Nov. 13, 2007.

Here are a few things to watch for:

Is SIRI continuing to see better momentum in subscriber gains than potential merger partner XMSR?

Look for comments on what synergies the combined companies could see if the merger is allowed to go through.

Comments on what the odds of the merger being completed are since the combined companies could see significantly lower costs like the immediate elimination of programming and administrative duplications and further down the road reduced costs of two separately owned satellite systems.

I believe the numbers will not be anything to talk about but as the date to vote on the merger nears, SIRI shares could see some upside. In addition, shares are currently priced at trough levels and even anything remotely positive (like higher-than-expected net subscriber additions, higher ARPU, or lower churn) could lift the stock with or without the merger.

Good luck if you are playing SIRI from the dark side or the good guy side.