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Revenue Surprise For Sirius XM Radio

|Includes:Sirius XM Holdings Inc. (SIRI)

Sirius XM Radio (NASDAQ:SIRI) filed their 10-Q / Quarterly Report  with the SEC last week.  Total Revenue for the Third Quarter was $762.5 million up $55 million from last year.  And Net Income was $104 million up 54% from 3Q 2010.  This in spite of only a 6.3% rise in revenue. The net income per common share of 3 cents and 2 cents diluted compared to last year when EPS was only 2 cents and 1 cent diluted.

Many people had anticipated these numbers from the company's conference call last Tuesday.  However some were disappointed about the subscriptions added for the quarter.  Only 334 million subs (up 7.5% over 3Q 2010) were added for an all time record high of 21.35 million subscribers. Their CEO Mel Karmazin quickly attributed this to the lagging economy over the past three months. So when is it a problem to be up over last year (especially in the current economy)?

But the biggest question: why is the price of the stock not reflecting the 54% rise in net income?  According to Barrons, analysts are giving it a $1.90 to $2.70 price tag.  Much higher than the current price of $1.75. Ironically the price last week of $1.85 was almost in line with the analysts reporting to Barrons. Yahoo Finance also gives it a target price range of $2.00 to $2.70.   And on Friday Forbes gave Sirius XM a target price of $2.11 after the 10-Q was released. Groups such as The Maxim Group  and Zacks have suddenly become bullish on Sirius XM. In their latest article Record - Breaking 3Q for Sirius XM, Zacks wrote "Currently it holds a short term Zacks #2 Rank (Buy) on the stock".

Today 5d 1m 3m 1y 5y 10y
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52wk high: 2.44
52wk low: 1.27
EPS: 0.05
PE: 33.60
Div Rate: N/A
Yield: N/A
Market Cap: 6.3 B
Volume: 801.17 k
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SIRI Market Currents more »

But what will really affect the price of the stock (in an upward way) will be the anticipated 4Q retail sales driven by the newly released hardware. On the  conference call , Sirius XM announced that the eagerly awaited  Android- based LYNX will be available by the end of the year. Hopefully in time for the Holidays.  Jim Meyer went on to explain:
We expect to have our product available -- the Lynx product available before the end of the year. That'll have a significant impact on the holiday season, although we're pretty optimistic about the acceptance of the product in the market. Overall, we're in the shape we usually are at this time of the year. We have several promotions planned with our key retail partners for both Black Friday and the Christmas holiday, as well as what we think is a strong lineup of promotions at our online store at And I'm pretty optimistic that the Christmas season will be good.

However even if it doesn't come out in time, Mel still anticipates a really good Christmas for the company because of the release of the  new dock and play radio the Edge, which is available right now with the new 2.0 platform. This product will not only appeal to first time Sirius XM users, but also to current users, because it is portable and can be used anywhere.
"We are excited to begin the SiriusXM 2.0 rollout with the new Edge radio," said Jim Meyer, President, Operations and Sales, SiriusXM. "Edge will be available at 2,500 retail locations by the holiday shopping season. Additional radios and features in upcoming phases of 2.0 will bring even more content and capabilities to our satellite and internet platforms, all providing exciting complements to our core radio services for subscribers."
This radio, at a price tag of $139.99, combined with the lowest 3 month sub rate of $38 will add a minimum of $178 in total revenue for each unit sold. And this total could be substantially higher. To add on the portable "boom-box" for $129, a home stereo kit for $49 and a premium sub at $50, the total could be well over $400 per unit sold. If only 10% of the current subscribers were to purchase this package, the additional revenue would be over $800 million in future. And there is the big Hispanic market.  This was addressed by Mel in the First Quarter Conference Call  earlier this year:
With 2.0, we'll be expanding our audio content lineup with new channels, including a suite of new Spanish-language channels. With 50 million Hispanics in the United States, we see significant upside potential with our expansion here. We'll also be offering an electronic program guide to better inform listeners about great content on all of our channels, listeners will be able to buy music from their radios, and we'll be including more DVR-like functionality such as pause, rewind and replay, as well as record and playback capabilities.

At this time these channels are only accessible with the new Edge Radio. I anticipate a big 4Q windfall for Sirius created solely by this new hardware. Now what the company does with all the extra cash is the subject of another article that I wrote for Seeking Alpha "Sirius XM Not Likely to Buy Back Shares".  I am long on SIRI.

Disclosure: I am long SIRI, LCAPA.
Stocks: SIRI