Sirius XM beats financial guidance – a lot


Sirius XM still has fewer subscribers than a year ago, but is much, much more profitable. The company reported adjusted pro forma income from operations of $115 million in Q4, bringing the total for 2009 to $463 million – 54% better than its original guidance to Wall Street. Look for that to grow to $550 million this year, the company said in its 2010 guidance.

Q4 revenues grew 6% to $684 million. “The paid subscriber business model works well in radio,” declared CEO Mel Karmazin. And he noted that revenues for the full year grew 4% to $2.53 billion despite the downturn in the auto industry and its impact on OEM subscriber additions. The company is expecting to add a half million net subscribers in 2010, which will finally put it back above the high point at the end of 2008.

Karmazin painted satellite radio as far superior financially to its competitors. He told analysts that AM and FM radio stations average $10-20 per listener per year in revenues, all from advertising, while the comparable number for subscription satellite radio is $70. (He claimed 35 million listeners, based on some Arbitron research.) And Internet radio, he said, takes in only $1.20 per year per listener.

Sirius XM ended 2009 with 18,772,795 subscribers. That was up 257,028 for Q4 over Q3, but down 231,098 from the end of 2008. But Karmazin insisted that the recovery in auto sales bodes well for Sirius XM. Also, the company is now focusing on used car sales, since many vehicles with inactive satellite radios are being sold from used car lots.

Amid Wall Street speculation about the long-term intentions of Liberty Media, which owns a 40% equity stake in Sirius XM, Karmazin said “hypothetical’s or possibilities could exist in the future,” but he declined to make any comment on what they might be. “Any questions about what Liberty might do is best directed to Greg Maffei and John Malone,” Karmazin said. He did noted, though, that the agreement which brought Liberty in as Sirius XM’s biggest shareholder includes a standstill provision that holds Liberty at 40% ownership. According to Karmazin, one of the attractions of the Liberty deal was that standstill, because “we didn’t want to provide control of this company to somebody without a significant control premium.”

RBR-TVBR observation: Did Karmazin learn a lesson from the Viacom-CBS merger? At the time we denounced the deal because he did not extract a premium from Sumner Redstone for exchanging the voting shares of CBS shareholders for non-voting Viacom shares. We note now that he is insisting that any sale of a controlling stake in Sirius XM would require the acquirer to pay a premium price.