The subscriber count for Sirius XM was down at the end of Q2 from both Q1 and from Q2 a year ago, even as revenues improved and CEO Mel Karmazin declared that 2009 cash flow will exceed $400 million. He remains confident that both revenues and the subscriber count will be “much larger than today” in years to come.
Pro forma Q2 revenue was up 1% to $608 million, with subscriber revenues up 3%. Ad revenues fell 33%, but Karmazin said the company has restructured its advertising sales department and he expects to see future growth there. With Sirius XM now generating substantial operating cash flow following the merger, Karmazin proudly reported $132 million in adjusted income from operations – a big reversal from the negative $61 million of a year ago. The company is now telling Wall Street to expect operating income of over $400 million for all of 2009, up from the previous guidance of $350 million-plus.
But meanwhile, subscriber numbers continue to fall. Sirius XM lost 185,999 net subscribers over Q2 to end at 18,413,435. That was also down 1% from a year ago and it was the second consecutive quarterly decline. The company is no longer issuing guidance on subscriber numbers, but Karmazin conceded that churn is likely to pick up due to the recent price increase.
In the long run, Sirius XM is focusing on a new program to win subscribers from people who buy used cars already equipped with satellite radio receivers and Karmazin is anticipating OEM sales growth once auto industry sales get back to normal levels. “Both General Motors and Chrysler emerged from the bankruptcy process relatively quickly. SAAR declines [seasonally adjusted annual rate of auto sales] appear to have bottomed out. Production schedules are resuming. Cash for clunker programs are working and we are cautiously optimistic that the second half of 2009 will show improvement,” Karmazin told analysts.
Although Sirius XM shareholders have given the OK for the board to institute a reverse stock split, Karmazin is not eager to pull the trigger. Nasdaq reinstituted its $1 minimum stock price rule at the beginning of this month, but it would be many months for Sirius XM to face delisting and the CEO is hopeful that the stock price issue will work itself out by the price simply rising above a buck. But in the meantime he is fighting the rule on another front. Karmazin said he’s complained the the SEC that Nasdaq shouldn’t be allowed to set a minimum price – that it should be up to each company to decide whether it wants its stock price to be months for Sirius XM to face delisting and the CEO is hopeful that the stock price issue will work itself out by the price simply rising above a buck. But in the meantime he is fighting the rule on another front. Karmazin said he’s complained to the SEC that Nasdaq shouldn’t be allowed to set a minimum price – that it should be up to each company to decide whether it wants its stock price to be at a certain level.
Asked about future growth prospects, Karmazin noted that some 90% of Americans are willing to pay for television, so he thinks satellite radio still has a bright future. He expressed confidence that both revenues and subscriber counts for Sirius XM will become much larger than they are today.
RBR/TVBR observation: Dream on Mel. Satellite radio’s big growth years are in the past. The subscriber plateau came much sooner and at a much lower level than either Sirius or XM projected when they sold their IPOs to gullible investors.
