Sirius Hits A Home Run - Maybe Even A Grand Slam

| About: Sirius XM (SIRI)

Sirius XM radio (SIRI) filed an 8-k with the SEC yesterday afternoon announcing preliminary subscriber results for the year ended December 31, 2011. In an attached press release the company announced that they added approximately 1,700,000 Net Subscribers in 2011:

NEW YORK – January 4, 2012 – Sirius XM Radio (NASDAQ: SIRI) at a conference today announced that it ended the year with nearly 21.9 million subscribers, reporting approximately 540,000 net new subscribers in the fourth quarter and approximately 1,700,000 for the full year 2011.

“Based on preliminary subscriber data, we are very pleased to announce that SiriusXM exceeded its subscriber guidance for the year. Our subscriber growth accelerated in 2011 as net additions grew approximately 20%, delivering our best year for net additions since the merger and demonstrating the strong continuing demand for our unmatched audio content,” said Mel Karmazin, Chief Executive Officer, SiriusXM.

Well, he said that he would hit it out of the park this year, and he did. There were a lot of "gloom and doomers" that did not think Sirius would even be able to make the subscriber guidance for the fourth quarter. But according to Mel's talk at the conference in San Francisco Wednesday, this was the best quarter for subs since the merger three years ago. This is up 100,000 subs over the guidance of 1.6 million. If we conservatively say that these will add $50 each in gross revenue per quarter, then this will be $5 million in additional revenue over guidance for Q4 2011. And it will add $20 million to 2012.

Now he has hit it out of the park, but are the bases loaded? I think he is going to make us wait for the Q4 results to see. He said that the lion's share of the subs continue to come from the OEM business. But with the addition of a new partnership with Auto Nation (AN) the company will begin to see huge increases in subscriptions due to the fact that there are 200 million used cars on the road which greatly outnumber new cars:

NEW YORK, Jan. 3, 2012 /PRNewswire/ -- Sirius XM Radio (SIRI) and AutoNation, Inc. (NYSE: AN), America's largest automotive retailer, today announced that customers will be eligible to receive a 3-month SiriusXM subscription when they purchase a pre-owned vehicle with a factory-installed satellite radio, regardless of make or model, from participating AutoNation dealerships across the United States.

I think this definitely would count as a man on first base. Now the biggest question that I have is, what about the retail end of the business? Listening to Mel Wednesday you can tell that the new and used cars are his baby. Many analysts have criticized him for not marketing the new retail products such as the new portable 2.0 Lynx which can function as a satellite radio or receive Sirius XM internet radio:

The radio is said to (be) the most advanced radio ever from Sirius XM with the capability to receive the new expanded Sirius XM 2.0 channel lineup of commercial-free music, sports and comedy that includes Sirius XM Latino, a new suite of Spanish-language programming. Lynx is built with a flexible architecture which allows for new features and capabilities to be added through software updates.

All of this is great, right? But the issue investors have with the company is that nobody will know about it because of its limited marketing – some might say it has not been marketed at all. This is one of the many issues that continue to frustrate Sirius investors. But I suspect things will soon change and this year the stock will finally catch up to the company’s recent stellar performance.

I don't have an answer for this except that the first shipments of the radios sold out immediately upon receipt. The Lynx was released last Thursday night and immediately there were rumors that Crutchfield.com had already sold out within an hour. I called Crutchfield and a representative told me that "thousands and thousands of people had pre-ordered it before Christmas, and the shipment did not even cover all the pre-orders." That night I also checked the Sirius website, and it appeared that there were still some left.

However, I checked it two days later and SiriusXM.com was also completely sold out. I called to verify it, and a Sirius representative did confirm it, but could not tell me what day the radios sold out, how many were in the first shipment or when they will get more in. At the time of this writing the site still shows that the Lynx radios are sold out. The older 2.0 Edge also appears to be sold out since it is not available anymore on the site.

I was hoping someone would ask Mel about this Wednesday, but again it is only the icing on the cake. And the cake is what Mel is focusing on. The rumor is that there would be more radios available Thursday at Crutchfield.com, however, at this time they are still showing sold out, ship date uncertain. And now the Sirius Onyx Radio with home kit and the Edge with the home kit is also sold out on the same site.

So this is probably why Sirius did not market them. It would be like hailing people down on Broadway to see a show that was completely sold out. Could these Lynx sales be a man on second base? I really think so. However, the bulk of the sales will not show up until Q1 2012 due to the probable shortage of product.

So Mel you did it! And according to a New York Times article on December 29, 2011 you will be handsomely rewarded.

For example, in the dark days of June 2009, Mel Karmazin, chief executive of Sirius XM Radio, was granted options to buy the company stock at 43 cents a share. At today’s price of about $1.80 a share, the value of those options has risen to $165 million from the $35 million reported by the company as a compensation expense on its financial books when they were issued.

And the stock has even gone higher since that article last week. At the time of this writing, Barrons.com is reporting that Sirius XM is at $1.89 in after hours trading, and at one point yesterday it was up to $1.92.

One thing that I must add is that the article focused on the fact that Sirius XM paid only $35 million for the stock options in 2009, but they can deduct the amount that the options are worth when they are cashed in, $165 million in the example. A lot of people consider this a loophole since they only paid $35 million for them. I consider myself to be pretty moderate, but I am conservative when it comes to money. And to me this is not a loophole. Why? Because the new value (say $165 million) is the value that the company is losing if they had kept the options. Also, it is double taxation for Sirius to pay taxes on the money, and for Mel to pay (personal income tax) on it also. I know a lot of people will disagree, especially a lot of liberal congressmen.

Regardless, Mel hit it out of the park, and he is keeping his cards close to his vest as to whether or not it is a grand slam. As a Sirius investor I am happy for a home run. I would definitely recommend buying this stock on the dips.

Disclosure: I am long SIRI.