As expected, Mel Karmazin delivered today at the Liberty Media (LMCA) investor conference when he spoke around 1PM. Investors had been waiting with bated breath since October first, expecting Sirius XM (SIRI) to deliver Q3's subscriber numbers early before its Q3 conference call on October 30th. It seems that the early morning rise towards 52 week and likewise multi year highs near $2.75 was justified.
You can listen to a replay of the webcast once it is uploaded to the Liberty investor website here.
Q3 subscriber numbers for Sirius XM came in at 446,000 net additions, a full 34% above those added in the same quarter 2011. This has taken Sirius XM's subscriber count to 23.4 million. When you consider previous guidance of 1.6 million net additions for 2012 required less than 300,000 added subscribers in Q3 and 300,000 subscribers in Q4 to be "met" for the year, and when you consider street expectations such as ISI Group's recently increased 336,000 net additions:
ISI Group analyst Vijay Jayant thinks Sirius XM could surprised the Street with better-than-expected subscriber growth for the third quarter, thanks largely to surprising strength in September auto sales. He now sees Sirius posting 456,000 net adds for the quarter, up from previously expected 336,000. He notes that September U.S. auto sales came in at an adjusted annualized rate of 14.9 million, above his forecast of 14.1 million.
it is no surprise that the share price of Sirius XM has posted significant gains. When a company outperforms, its stock should outperform as well. There's no denying that Sirius XM has outperformed considerably this year.
It is also no surprise that Mel Karmazin also upped subscriber guidance for 2012 from 1.6 million net additions to 1.8 million net additions. With Q3's numbers in, there was only a deficit of roughly 250,000 subscribers which needed to be met for Q4. Given that Q4 is typically a strong month for new subscribers, it's reasonable to believe that Sirius XM's new guidance of 1.8 million net additions remains on the conservative side. I've no doubt that it will meet or even beat this guidance nearing 2 million net subscriber additions for 2012 once full numbers are known after the first of this year.
What does this mean for the stock? I think the stock remains an attractive investment even at current pricing near 52 week and multi year highs. With Sirius XM growing strong and beyond expectations, I believe the share price will continue to grow strong, so expectations should be raised and price targets should be increased accordingly. I remain of the opinion that the share price could breach $3 per share this year, and next year once Liberty Media takes de jure control, the price could move quickly towards the $4 mark.
Headwinds appear to be light. Sirius XM has grown and taken market share from terrestrial radio since inception. IP delivered services such as Pandora (P) and Spotify do not seem to be impacting Sirius XM's churn which is currently at 1.9%, and likely will not impact Sirius XM's churn going forward to any significant degree. Mobile IP just isn't quite there yet. IP delivery of radio may present more of an issue as years go by and infrastructure is laid out, so investors should keep an eye on this area and how Sirius XM is managing it going forward through 2013 and beyond.
As I noted on July 5th, Liberty's ultimate plans may catapult the share price of Sirius XM. Since then Liberty has mentioned several times that it would like to pursue the route of share buybacks to reduce the float. Reduction in outstanding shares should increase the value of remaining shares, and that's a rise that investors will want to be on board for. You're not just buying into a buyback. You're buying into a buyback and you are buying into a company which is running strong and running well above its own expectations as well as the expectations of the street. That's a winning combination any way you look at it.
Disclosure: I am long SIRI.