Rising Auto Sales Drive Sirius XM Subscriber Growth

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Sirius RadioSirius XM's (SIRI) first quarter results impressed as its total subscribers reached a new high of 20.6 million, up 9% from a year ago. Its adjusted EBITDA was $181 million, up 15% year-over-year. Management mentioned that subscriber growth was supported by a rebound in the auto industry. Both Ford (F) and GM (GM) have also reported encouraging earnings recently.

Despite the problems for the OEM supply chain caused by Japan's earthquake, the firm expects to increase net new subscribers by 1.4 million in 2011. While we anticipate Sirius's average revenue per subscriber will continue to grow to around $160 by the end of forecast period, Trefis members predict higher per subscriber revenue of $185, implying a premium of just under 20% to our $2 price estimate for SIRI stock.

Impressive Results

A revival in automobile sales helped lift Sirius XM's net subscriber numbers in the first quarter to 373,064 -- an increase of 118% from the same period last year. The company's churn rate has remained more or less stable at 2% of total paid subscriptions, while its free cash flow improved by $110 million year-over-year. However, its average revenue per user was up by a marginal $0.04, which was a result of higher sales of premium services, including "best of" programming, data services and streaming, according to the company. For full year 2011, Sirius XM guides for adjusted EBITDA of $715 million, and free cash flow of closer to $350 million.

New Positive Developments

Citing strong quarterly performance, subscriber growth and debt reduction, Moody's has upgraded Sirius XM's debt ratings from B3 to B2 (still around 5 levels below investment grade) and raised its probability of default rating from B2 to B1.

Sirius has also entered the television app market by signing a deal with Samsung (SMSN) so that the Sirius XM app will now be included on Samsung televisions. As many TVs are Internet-enabled today, consumers will be able to access radio content on their TV sets using Sirius XM app, just as with Netflix (NFLX). This will provide a tough new source of competition to Internet radio players like Pandora, and will also lower Sirius' dependence on automobile sales for its revenues in the long run.

Our complete analysis for Sirius XM's stock is here.

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