Sirius XM Earnings: Customers Tune In But Investors Tune Out

Sirius

Sirius XM (NASDAQ:SIRI) ended the year with a bang — one that may be loud enough to spook the bears, but not quite loud enough to inspire investors. The satellite radio provider reported fourth-quarter and full-year results on Tuesday morning that “capped a year of records and milestones,” as CEO Jim Meyer put it. “We delivered our first ever billion dollar revenue quarter, and our first ever quarter with adjusted EBITDA and free cash flow each over $300 million. Our adjusted EBITDA margin of 32.5% in the fourth quarter was the highest in the history of the Company.”

Fueled by strong subscriber growth, total revenue increased about 12 percent to just more than $1 billion, beating the mean analyst estimate of $981.9 million. Subscriber revenue grew 10 percent to $852.5 million, about 85 percent of total revenue, while total net paid subscribers increased nearly 7 percent to about 25.6 million. Sirius reported an average subscriber acquisition cost (per gross subscriber addition) of $44 for the quarter and of $50 for the year, down 18.5 percent and 7.4 percent, respectively. Average self-pay churn increased by one-tenth of a percentage point to 1.9 percent (self-pay subscribers account for 82 percent of total subscribers). To boot, Sirius XM reported total subscriber acquisition costs of “just 12% of adjusted revenue, the lowest percentage in the Company’s history. The improvement in SAC was driven by lower subsidy rates per vehicle.”

Adjusted EBITDA increased 41 percent on the year to $325 million, but net income per common share fell to 1 cent from 2 cents, missing the mean analyst estimate of 2 cents. For the full year, net income per common diluted share fell to 6 cents from 51 cents, missing the mean analyst estimate of 7 cents.

Sirius XM stock was pretty much flat at $3.55 in early trading on Tuesday following the report. Although earnings were generally strong, they did not appear to compel investors to bid the stock up to $3.68, the price at which Liberty Media (NASDAQ:LMCA) has offered to buy the 47 percent of the company that it does not own. Whether this is a fair price for the satellite radio company has been a point of debate between shareholders, analysts, and Liberty Media Chairman John Malone; analysts currently hold an average price target of $4.48 per share.

Looking ahead, Sirius XM expects more good things to come and reiterated its guidance for 2014. The company expects revenue of “over $4 billion,” which is consistent with current analyst expectations for revenue of $4.13 billion. Net subscribers are expected to grow by approximately 1.25 million, free cash flow is expected to approach $1.1 billion, and EBITA is expected to increase to $1.38 billion.

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