Sirius XM (SIRI) announced Wednesday that the company hit 2 million subscribers for 2012 and also issued financial and subscriber guidance for 2013. In response, the equity did essentially nothing. Why is that?
In my opinion the news of hitting the 2 million mark for 2012 was tempered by the fact that 2013 subscriber guidance is at just 1.4 million. Strangely, this seems familiar to last year when the company started off 2012 guidance at just 1.3 million. In the past, it has been the style of former CEO Mel Karmazin to issue conservative guidance and then beat it. It was a widely known expectation. Karmazin is gone now and James Meyer is now CEO. Does he share the same philosophy as Karmazin? That is what many analysts and investors are likely asking.
A lower number for subscriber guidance was not unexpected by all. In fact, I have outlined in several pieces why Sirius XM could hit 2 million for 2012 and have trouble reaching that number again in 2013 despite an anticipated rise in auto sales and better traction from the used car segment. The issue orbits around the new deal with General Motors (GM) that will start in Q4 of this year.
The new GM deal is better for the company in the long term, but the impacts will be felt in subscriber numbers here in 2013. In the old deal, GM paid for a promotional subscription. This allowed Sirius XM to count every satellite radio equipped car sold as a subscriber. Essentially, these were paid promotions. In the new deal, GM is not paying money. This means that all satellite radio equipped cars will no longer be counted as subscribers. Thus, between 300,000 and 400,000 cars will not be counted this year (GM's Q4 sales). Regular readers of my articles were already aware of this dynamic as well as the warnings that I attached to it.
- Revenue of over $3.7 billion,
- Adjusted EBITDA of over $1.1 billion,
- Free cash flow approaching $900 million,
- Self-pay net subscriber additions of approximately 1.6 million, and
- Total net subscriber additions of approximately 1.4 million.
The guidance issued by the company, aside from the subscriber numbers, are pretty much in line with what I have been saying for quite some time. While some regular readers were expecting much more, and ultimately that may pan out, the financial numbers are the starting point that I was looking for.
The bottom line here is that Sirius XM is on a good path. The guidance provided continues a growth curve that should set up 2013 to be a good year for the company. It will take some time to digest the new CEO and his style, but given the current guidance, it is possible to see the company hit revenue approaching $3.8 billion (remember that there will be $200 million less revenue from GM this year), EBITDA at $1.2 billion (not as high as the $1.3 some feel was certain, but growth nonetheless), and free cash flow of at least $950 million.
Sirius XM will have its day to rise, but that may need to wait a bit until the street can digest these new numbers. The anchor right now is the subscriber guidance of 1.4 million.
Disclosure: I am long SIRI.