- Bear Stearns notes the subs number was slightly ahead of their recently revised estimate of 5.9m and in the range of their recently reduced guidance (5.9-6.1m). The ending subs would imply net adds of 905K for the quarter, which declined 21% YOY as 4Q 05 was skewed by Howard Stern.
Assuming OEM net adds are consistent with their expectation, the marginal outperformance is driven by retail, and that Sirius had a 58% market share at retail (consistent with publicly released NPD data), Sirius's ending subs imply that XM likely may have ended the quarter with 7.85M subscribers, about 50K higher than firm's current estimates.
Over the last month based on retail travails, Sirius has fallen 15% and the 10% EV premium has been erased and actually turned to an 4% EV gap to XM. The firm thinks this is more reasonable given that the focus in 2007 is shifting to OEM where XM's partners have ~60% market share. Should Sirius execute during 2007 and the EV gap widen further, they could be inclined to revisit their Underperform rating, as they are bullish on the industry and the long term prospects of the companies.
- Deutsche Bank thinks that given that Sirius stock opens 2007 at $3.54, just above its 52-week low of $3.50, and the stock was down 7.5% in 4Q06, reflecting the lower sub guidance on December 4 and investor fears about a decelerating satellite radio retail category generally, they believe the 6.0m subs will be viewed as good news and maintain Buy rating.
- Cowen notes that six quarters ago, in August 2005, SIRI set guidance for positive FCF in Q4:06. Firm views the accomplishment of this goal as a strong indication of the co's FCF pot'l. This success bodes well for SIRI's longer-term guidance of $3B in revs and $1B in FCF by 2010. This LT guidance reflects significant upside to their estimates.
Expects several catalysts to drive appreciation in 2007 including: 1) OEM growth, 2) Settlement in royalty arbitration, 3) Cont'd FCF performance. M&A could provide add'l upside, however they do not view it as highly likely.
Notablecalls: I think SIRI shareholders will enjoy a nice day today.