Seeking Alpha
Profile| Send Message|
( followers)  

By Brandon Matthews

There were no surprises to the third quarter results turned in by Sirius XM Thursday morning, and a lack of company guidance past the current quarter has left me a bit disappointed (see earnings report here and earnings call transcript here). Can we really trust that the analyst community can figure things out for itself? Let's hope so. Sirius XM raised guidance for 2010, albeit conservative as usual. The 30% year-over-year EBITDA growth projection for 2010 should allow analysts to up 2011 modeling to at least 720 million, and that does not include potential price hikes next year.

This should help to alleviate valuation concerns for many, yet all too often many analysts ignore the track record of Mel Karmazin's ability to grow EBITDA at 20%, and project far less only to revise their estimates more fluidly later. Still, the conference call did include a new direction that had not previously been announced. As I mentioned during the call, I am going to be the first to issue a revised 2011 price target of $2.50 on Sirius XM shares, base on my 2011 EBITDA forecasts, a continued OEM recovery, better used car penetration and expected price increases. (Update: S & P has maintained its buy rating on Sirus XM with a $2.00 target)

Sirius XM announced that the company can now increase bandwidth by a full 25%, which will allow for the introduction of 10 to 12 new spanish language channels. Karmazin called this a "huge" potential market. Previously, the company had mentioned that it was working with a company in Mexico, while Liberty Media (LMDIA) president Greg Maffei hinted that bringing Satellite Radio to South America could be an option.

I recall that during the previous conference call, Sirius XM stated that it had the ability to bring the streaming application to market first, and that new aftermarket radios would be available in the fourth quarter of next year. I expect that the launch of the final satellite next year is the key driver of the 2.0 technology.

DirecTV (NASDAQ:DTV) also announced its quarterly earnings Thursday morning (see earnings report here and earnings call transcript here), and reported that it added 206,000 Latin American subscribers compared with 174,000 in the United States. Mel's assertion that this market is potentially huge may have been the greatest understatement and overlooked aspect of the call, when considering the Latin American population in the United States alone. By offering content that is appealing to Latinos, nearly every major metric will improve, from churn to oem conversion rates. While it's still a ways off, the direction of the company looks positive.

Disclosure: Long SIRI

Source: Sirius XM Earnings Call: First Impressions