siri first quarter review satwave
Home Sirius News Sirius XM News Sirius XM Radio News Sirius XM Radio’s First Quarter Review
By Brandon Matthews
After taking a day to digest Sirius XM Radio’s (NASDAQ: SIRI) results, I must admit that I remain a bit disappointed. The results for the most part were in line with analyst expectations, and Sirius XM reported an unexpected first ever profit of .01 per share. Actually, most of us that follow the company’s day to day operations were expecting it, but the company did fall short of my own expectations. Especially noteworthy, is that the company reported that it had surpassed the previous record number of subscribers, indicating that the company has added no less than 59,000 subscribers already in the current quarter.
I wrote an article detailing my own expectations, some of which were right and some of which were wrong. I placed emphasis on what I expected Sirius XM to report in revenue, which it just happens was one of the items I flat out missed. I had expected over $700 million in revenue, yet the company fell short of that mark with $670 million reported. Although this was inline with analyst projections, I had cautioned that a revenue number below $682 million would be viewed as negative. Thus far, it has been.
The reason that I had stated this lies in the fact that most analyst models are based on the numbers that Sirius XM reported. That is fine in and of itself, but it did not justify higher valuations. Many analysts feel that at $1.25, Sirius XM is fairly valued. The $1.25 target is a year end target rather than a trading target. With numbers inline with expectations, a pullback on valuation concerns was likely to occur.
One question that is being repeated, is why Sirius XM did not increase guidance as most analysts also feel the company is being too conservative. Sirius XM shied away from increasing guidance, saying that the company would like to give things a little more time to improve visibility. When I look into the earnings picture to see how my estimations could have been so far off, the reasoning behind Sirius XM’s cautious posture becomes clear.
The economy remains a drag on Sirius XM. This can be seen in the specific subscriber revenue reported by the company. Subscriber revenue is a separate line item from other types of revenue. Despite increasing its subscriber rolls by over 171,000 in the first quarter, subscriber revenue declined for the first time since Q1 of last year. This could be attributed to subscribers opting for lower priced plans, certain OEM’s that have no payment obligations in the first quarter, etc. The same thing happened one year ago.
One promotional trial the company had recently run offered five months of service for just twenty dollars to subscribers that had been deactivated. It seemed the intent of those plans was to allow people that had lost their jobs during the recession to continue to enjoy Sirius or XM until the employment picture improved. Those plans come up for renewal in the current quarter.
The good news, is that Sirius XM reaffirmed its revenue projections for the year at $2.7 billion. In the meantime, investors can look ahead to Russell rebalancing while we wait for Sirius XM’s next report.
Position: Long S
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