Sirius XM Stock: Earnings Preview
(Sirius XM Earnings Preview article updated with new 52-week high and analyst commentary.)
NEW YORK (
) --
Sirius XM
(SIRI) - Get Report
reached a 52-week high of $1.59 today as investors, aware of the company's strong subscriber growth in the third quarter, anticipate the release of its earnings report on Thursday.
Sirius is slated to announce its third quarter results on November 4, and management has already made investors privy to the
significant subscriber growth it saw in the quarter
.
Chief Executive Officer Mel Karmazin announced that the satellite radio company added 334,727 net subscribers in the third quarter, compared with a net gain of 102,295 subscribers during the same period a year ago.
Karmazin said he
expects Sirius to end 2010 with approximately 20.1 million subscribers
, which would be the highest number of net subscribers in its history.
Sirius shares have been spiking to
over the last several weeks, reaching 52-week highs of $1.58 on Monday in early morning trading and $1.59 on Tuesday morning. The stock has been steadily gaining since its low of around 55 cents one year ago.
In the second quarter, the company's net income came in at $15.3 million, or less than 1 cent per share, compared with a loss of $159.6 million, or 4 cents a share, a year earlier.
It added more than 583,000 subscribers in the second quarter, and the total number of subscribers was up 6% from the year before to over 19.5 million.
"The sharp subscriber growth and double-digit increase in adjusted revenue and adjusted EBITDA show that we continued to execute on our business plan during the second quarter," CEO Mel Karmazin said in the company's earning report. "Our business has improved substantially in the past year, and we look forward to a strong second half and 2011."
Subscribers are the most important source of revenue for the company, pulling in billions of dollars each year. Sirius relies on its programming to attract listeners, and commercial-free listening could mean far less without the likes of a Howard Stern or Oprah Winfrey behind it, especially as Internet radio outlets like Pandora.com become more viable competition.
Talent is the key, and a costly one. In 2009 the company reported that it spent $370.5 million on programming and content.
Executives are currently in talks with Howard Stern and several other
expiring program personalities to negotiate new contract terms
. Stern's 5-year, $500 million deal expires in December 2010, and as often as he has hinted at leaving, he has just as often suggested that he wants to stay.
Poll: Will Howard Stern Leave Sirius?
Analyst Barton Crockett of Lazard Capital raised his target price for Sirius by 30 cents to $1.65 based on his assumption that the adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will increase year over year, coming in at $692 million in 2011, and $835 million in 2012.
He reaffirmed his buy rating based on the growth in net subscribers and the rising average revenue per subscriber.
In his Oct. 14 report, Crockett said that the company's risks include the pending contract renewal with Stern, the growing competition with Internet radio as well as weak car sales.
Crockett lowered his estimated earnings per share for the third quarter to a loss of 1 cent per share down from his previous estimate of 0 cents a share. According to
Briefing.com
, the consensus for Sirius earnings per share in the third quarter is 0 cents.
Karmazin has promised investors and fans that he will provide an update on the status of Stern's expiring contract before the company's third quarter earnings conference call, scheduled for 8 A.M. ET on Thursday, Nov. 4.
"We assume that Howard Stern is more likely to stay than go, with cash pay close to the $80 million a year he currently receives, but no more equity," Crockett said in his report. "We think he stays because others won't match the cash he gets from Sirius, and because the show provides flexibility on work hours and format."
If Stern leaves Sirius and moves to a terrestrial radio station, Crockett says that investors would likely be "relatively unconcerned." However, if he ends up going to an Internet service such as Pandora, Sirius stock would likely drop due to investors' fears about competition.
Shares might be hit in the short-term but would soon recover.
In a Nov. 1 report Crockett forecast that by 2015 free cash flow will be above $1 billion, driven by growth in its subscriber base. He expects that the subscriber growth will be boosted by penetration in 60% of new cars and free trial conversion rates high than 45%.
-- Written by Theresa McCabe in Boston.
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