Satellite radio services provider SIRIUS XM Radio Inc. (SIRI) has recently achieved a milestone, touching the 20-million subscriber base — a historic high. The company, which was facing bankruptcy just a year ago, is now steadily moving towards stability.
SIRIUS XM’s business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both the XM and SIRIUS satellite radio services.
Improving U.S. economic conditions have resulted in the recovery of auto sector sales together with better-than-expected consumer spends enabling the company to reach the summit. SIRIUS XM owns an extensive satellite network covering the whole of the U.S. that streams audio content over 130 channels. After Comcast, the company is now the second largest entertainment subscription services provider in the U.S.
SIRIUS XM declared that despite facing a severe economic turmoil and competitive pressure, it acquired the last 10 million subscribers faster than the first 10 million. The company now expects to add 1.3 million net subscribers in 2010, much higher than its previous prediction of 1.1 million. Importantly, this is the fourth time that management has raised its subscriber guidance for 2010.
During the third quarter of 2010, SIRIUS XM reported great improvement with respect to several operating metrics. Average revenue per user was $11.81 compared to $10.09 in the year-ago quarter. Conversion rate was 48.1% compared to 46.2% in the year-ago quarter.
Average self-pay monthly churn rate was 1.9% compared to 2% in the year-ago quarter. Subscriber acquisition cost was $59 compared to $69 in the prior-year quarter. Customer services & billing expenses per subscriber were $1.02 compared to $1.01 in the year-ago quarter.
Standard & Poor’s (S&P) declared that it has put its ratings for SIRIUS XM on credit watch for a possible upgrade. S&P has currently assigned a “B” Corporate Credit rating for SIRIUS XM.
Recently, Moody’s Investor Service upgraded the credit rating of SIRIUS XM. The corporate family rating of SIRIUS XM is upgraded to “B3” from “Caa1” and the probability of default rating has been upgraded to “B2” from “B3”. Overall, Moody’s rating outlook for SIRIUS XM is stable.
SIRIUS XM competes with other broadcast radio companies like Cumulus Media Inc. (CMLS) and Westwood One Inc. (WWON). We maintain our long-term Neutral recommendation for SIRIUS XM. Currently, it is a short-term Zacks #3 Rank (Hold) stock.