Money Morning Staff Reports
Sirius XM Radio Inc. (Nasdaq: SIRI), the New York-based provider of subscription-based satellite radio services, today (Thursday) reported that it cut its first-quarter loss in half on a 5% increase in revenue.
The company also boosted its fiscal 2009 financial outlook.
Sirius shares were down 8.7 cents each, or 16.62%, and were trading at 43.8 cents per share early afternoon today.
The company, which resulted from the July combination of Sirius and XM Satellite Radio Inc., reported a net loss of $50.4 million for this year's first quarter. That was less than half the loss of $104.1 million reported in the first quarter a year ago.
The net loss attributable to common shareholders was $236.6 million, or 7 cents a share, compared with a loss of $104.1 million, or 7 cents, in the year-earlier quarter.
Shares outstanding were 3.52 billion in this year's first quarter, or more than double the 1.48 billion shares outstanding in the first quarter a year ago.
On an adjusted basis, the company reported a quarterly profit from operations of $108.8 million, a major turnabout from a loss from operations of $70.2 million in the comparable quarter a year ago.
On a pro-forma basis,to $62.9 million in the first quarter of this year from a net loss of $233.4 million in the year-earlier period, MarketWatch reported.
Pro-forma revenue was $605.5 million, up 5% from revenue of $578.8 million for the first quarter a year ago.
Analysts expected Sirius XM to post a first quarter loss of 2 cents a share, on revenue of $647.4 million.
Liberty Media Holding Corp.'s (Nasdaq: LINTA) recently took a 40% stake in Sirius, helping the satellite radio firm avoid bankruptcy.
Investors will evaluate the quarterly earnings report largely by the company's performance in three areas, Money Morning reported in its "Hot Stocks" feature early today. Those three areas are:
- Whatever the company is willing to provide in terms of subscriber numbers or subscription trends.
- Cost-cutting or cost-management initiatives and results.
- And adjusted earnings (earnings before income taxes, depreciation, and amortization, also known as EBITDA).
In terms of subscriber performance, Sirius said that it ended the first quarter with 18.6 million subscribers, up 3% from the 18 million it had (on a pro-forma basis) at the end of the first quarter last year. The cost of acquiring subscribers improved 26%, dropping from an average of $82 last year to $61 this year.
That improvement in outlays per consumer was good to achieve, for Sirius reported a revenue-per-subscriber number that was down slightly from last year. In this year's first quarter, adjusted average revenue per subuscriber was $10.43, a bit of a decrease from the revenue of $10.48 reported a year ago.
Back in November, Sirius XM Radio Chief Executive Officer Mel Karmazin said he expected subscribership to increase to 28.4 million by 2013. Sirius had 19 million subscribers at the end of last year and expects to close 2009 with 20.6 million, Karmazin said at the time.
Subscribership is based on two key factors: U.S. auto sales, and the state of the consumer-driven U.S. economy.
Auto sales are on a steady decline with Chrysler LLC in bankruptcy and General Motors Corp. (NYSE: GM) potentially facing a similar fate. Fewer car sales means fewer subscribers joining the Sirius service, since the auto sector is a big source of new business for the satellite radio provider. Ford and GM both experienced 32% sales declines.
"Satellite radio's growth has grown increasingly dependent on OEM automotive distribution," said Stanford Group analyst Frederick Moran. "Automotive sales have fallen to the lowest levels in decades."
The U.S. recession won't help, either. Satellite radio is considered more of a luxury than a necessity. Last quarter, Sirius saw its gross additions slip 7% despite the holiday season. All signs point to margins getting squeezed. But the question then becomes: how much before this number sends investors for the exits?
In terms of management initiatives, the company said today that it expects to achieve more than $350 million in adjusted income for fiscal 2009. On March 10, the company projected income for the year of "more than $300 million." From an assumed base of $300 million, the new project would represent an increase of 17%.
Back in March, Karmazin said "there is a greater emphasis on the importance of adjusted earnings before income, taxes, depreciation and amortization. It is in 2009 when we will have over $300 million of EBITDA (earnings before income taxes, depreciation and amortization)."
One potential way for the company to boost its financial performance is via innovation. For instance, Sirius has promised to launch the new Sirius iPhone application in the next several weeks, according to The Wall Stret Journal.
The new application will allow customers to stream satellite radio over their Apple Inc. (Nasdaq: AAPL) iPhones. And that means that Sirius XM seems to be admitting that its satellite-delivery system – once viewed as cutting edge – now has major competition far beyond what the founders of the satellite radio service ever thought possible. According to The Journal, Sirius must prove it can emerge as a leader in a technological marketplace where cars now have iPod jacks and phones can go online, allowing people to stream free music stations.
Other Factors to Consider
Sirius XM investors have other factors to consider when evaluating the company's long-term outlook. The merger took much longer than expected, causing major problems financially. Shareholders faced a total wipeout when the stock fell to a nickel a share.
In February, Liberty Media came along and bailed out the company with a $530 million loan. This gave Liberty's John Malone and his company a 40% stake in the satellite radio provider. The stock popped on this news. The company's shares also took off when Standard & Poor's Inc. boosted the company's junk-territory rating from "CCC" to "CCC+" and raised the issue-level rating by one level. S&P kept the company's senior unsecured notes at a rating of "CCC-." Showing some signs of life, Sirius XM's stock traded as high as 60 cents a share, and closed yesterday (Wednesday) at 52.5 cents.
"There are a lot of interesting things that might transpire between Sirius XM Radio Inc. and DirectTV," Liberty Media Chief Executive Officer Greg Maffei told CNBC in a Monday interview. Liberty Media executives are tossing around the ideas of a program partnership, bundling programming and merging the Sirius and DirectTV's marketing teams.
Sirius is also hoping that the proposed iPhone application brings on new subscribers by offering wireless telephone services.
Sirius will have to deal with contracts in 2009. Not only will it have to negotiate a new contract with Karmazin, it must also consider which personalities it wants to keep. A major renegotiation will be between the company and so-called "shock jock" Howard Stern, whose five-year, $500 million deal draws to a close.
"I'm not concerned," Stern said. "I think satellite radio is great and will be a successful business and it will survive. As long as someone is paying our salary, we're here and I believe we'll get paid and that satellite radio will be here."
News and Related Story Links:
- Money Morning Hot Stocks Feature:
Hot Stocks: Will Sirius Post Some Serious First-Quarter Results Today?
- The Wall Street Journal:
Getting Sirius: Satellite Radio Broadens Reach.
Frederick Moran, Stanford Group.
- MarketWatch: .