Points of Interest From Sirius Q3 Conference Call

Nov. 9.10 | About: Sirius XM (SIRI)

By Relmor Demitrius

Sirius XM Radio (NASDAQ:SIRI) reported their 3rd quarter results on Thursday, Nov 4th (see earnings report here and earnings call transcript here). It was a quarter that showed record revenue (722 million), EBITDA (170 million), and earnings (69 million). Earnings were good for .02 cents basic and .01 cent diluted. Earnings for 2010 have now beaten all beginning of year analyst estimates (except me). I issued a warning to investors before the call that Sirius XM would also be forced to raise EBITDA guidance as it would be too close to the 575 million after Q3 to maintain. They indeed did raise it to 600 million, which is still light and underestimating it, as an analyst during the conference call pointed out, and asked whether this indicated that a weak EBITDA quarter is coming. On the contrary, EBITDA should be higher in Q4 than in Q3 and this raise of guidance was necessary to keep the company from being embarrassed on how much they are under promising and over delivering.

Of course, Mel Karmazin (CEO of Sirius XM) asked for this confusion by going low on EBITDA guidance, but Sirius XM has been in a pattern now of shattering EBITDA estimates. I would expect Q4 to be no different. Here are some other observations from the filing.

Advertising revenue is up considerably, year to year. For the nine months ending September of 2009 they had 37 million, in 2010 so far they have 46 million in ad revenue. This shows Mel’s forte, the advertising game, and I expect this figure to only get larger and larger as the quarters progress. Mel’s goal is to maximize ad revenue possibilities and in this area the company is still in its infancy. There is lots more growth available in this area as subscriber numbers increase (charge more) and avenues present themselves that do not intrude on the satellite radio experience.

Self pay subscribers are up to 16.3 million from just over 16 million in the 2nd quarter of this year. A steady 200,000 to 300,000 permanent subscribers (base, non promotional) increase per quarter is driving a steady increase to revenue. This proves that churn is acceptable as well as the current take rate from OEM. As a side note, we still want to see churn improve. Also it indicates the retail side loss of subscribers (trending smaller) is not affecting the overall base. As more used car programs are installed and utilized (more and more used cars with SATRAD in them hit the market every day) and new and improved radio products hit the shelves, this loss in retail subscribers should continue to grow smaller, hopefully soon actually adding subscribers in the near future.

As the model currently relies heavily on the car market for additions, this would be a huge plus going forward for the model. Currently all analyst metrics are figured for the retail sector to not be adding subscribers. This would greatly affect their model going forward if this trend were to reverse. Sirius XM lost 309,972 retail subscribers in 2009 versus only losing 188,884 in 2010. This is a big difference in only one year. If the trend reversal continues, possibly in one more year this metric turns completely to the positive (additions vs less losses). Sirius XM 2.0 coming in 2011 should greatly help this situation as well. Mel hinted that exciting new channels and personalization options are coming in this new retail line of radios.

Look for more observations and notes on this quarter's numbers in the following days.

Disclosure: Long SIRI