Sirius XM Radio Inc. (SIRI) is having a rough October this year. The market is keeping Sirius's price down, despite the fact that the company posted a record-setting 3rd quarter gross revenue income of $961 million. That's a good 11% improvement over last year's same-quarter gross revenue of $867 million.
Sirius XM is performing very well for this year based on its quarterly income statement. The company's month-to-month revenue is pointed in an upward trajectory. The 3rd quarter $961 million is step up from 2nd quarter's $940.11 million; which in of itself is higher than 1st quarter's $897.4 million. Based on this pattern, Sirius XM is on track to meeting its total target gross income of $3.7 billion for 2013.
So it is really depressing to see that investors are not giving Sirius its rightful reward for being a great profitable American company. Right after Sirius released its 3rd quarter report on October 24, the market immediately sold the price down from $4.02 to $3.66. It was a big sell-off too, considering the +400 million Sirius shares that was traded in a span of two days.
As of today, Sirius has made a minor recovery towards the $3.74 price range. It is still being heavily traded but there's no sign that the stock will go back to its October 1st high or $4.18.
Solid Performance History
This bearish treatment of Sirius is unexpected. On an annual basis, Sirius posted impressive year to year growth. Look at its past 3-year record; the company earned $2.81 billion, for 2011 it made $3.01 billion, and for last year $3.40 billion. Who said radio is dead? Killed by cable, video, and the internet? Sirius XM is actually growing, not dying, people are paying money to listen to Sirius broadcasts.
Actually, more and more people are willingly giving money to listen to Sirius. Based on its 3rd quarter report, this satellite radio company now has a massive 25.6 million paid subscribers. That's 9% more than last year. Sirius added 513,000 more subscribers for this year's 3rd quarter period - another great improvement from the 446,000 new recruits they gained from the same period last year. The company has also a loyal base of self-paying customers - 20.7 million of them keep renewing monthly Sirius plans.
This huge pool of monthly-paying customers gives Sirius a reliable cash flow. The company has no need for new short-term or long-term loans. As of September 30, 2013, the company has a record $245 free cash flow for the quarter, 26% higher than the $195 million for the same period in 2012. For the first three quarters, Sirius has a free cash flow of $624 million, a huge 42% increase compared to last year.
Sirius is the heavyweight champion when it comes to pay-radio listening. It is the shark among small fish. After the 2008 merger between XM Satellite Radio and Sirius, no other viable competition emerged. Sirius XM has 9 satellites up in the sky which covers most of North America.
The only annoying threat that this company face right now emanates from online streaming companies like Pandora (P) and Spotify. However, Sirius has already addressed this internet-based threat. The company now offers its shows as a paid web streaming service to Android, BlackBerry (BBRY) and iOS smartphones and tablet owners. Existing subscribers can avail of this streaming service as an add-on service or just an internet-only deal for new subscribers.
This prudent move by Sirius to also offer its pay-radio service to smartphone and tablet computer owners guarantees it won't lose customers to Pandora or Spotify. It is also a great opportunity for the company to extend its revenue base. There are now more smartphones being sold than car radios. Sirius can double up its subscriber's base if it makes the right moves which will attract Android and iOS gadget owners.
Some Love for Sirius
Ignore the pessimistic market perception. Sirius XM is still a sexy company worth investing in. It has a fat source of revenue and well-laid structure for growth. Despite its ugly and low earnings per share performance for the last 5 years, this company is an excellent long-term bet. It may take another 3 or 5 years before it really delivers what the market expects of it in terms of profits - but when it does, it will do so grandly.
Buy Sirius now before it hits $4.0 and hold it for long term gains.