This Week in Sirius XM Radio

It was another eventful week for our favorite -- and only, really -- satellite-radio provider.

The highlight, of course, was Sirius XM Radio's (NAS: SIRI) third-quarter results on Thursday morning. It was a solid performance, though the stock closed the day unchanged after trading as much as 6% higher earlier on the report. It did close 3% higher on Friday.

Since Sirius XM also confirmed that its personalized radio-streaming service is still on track for a launch before the end of the year, it was also noteworthy that Google (NAS: GOOG) announced a Google Play licensing deal with the last of the major labels.

There was plenty to unearth from the financial report and the conference call that followed, so let's start there.

Sirius XM earns its keep
Since Sirius XM had already preannounced strong subscriber growth during the third quarter, it wasn't a surprise to see revenue climb 14% to $867.4 million. As more subscribers continue to start paying the new higher monthly rates -- and Sirius XM notes that 60% of its self-pay members are already paying the higher $14.49 a month -- average revenue per user will keep inching higher.

It's a potent combination for a company that has high fixed overhead and low variable expenses. It makes the model scalable, so if revenue is going up, profitability is probably growing even faster.

In other words, a 24% jump in adjusted EBITDA and a 159% explosion in free cash flow come with the territory.

On the earnings front, there was a bit of confusion with the early financial reports. A couple of sources referred to Sirius XM's performance as a bottom-line miss, but there was actually a $107 million hit in that earnings number from the early extinguishment of debt. If you bake that number out, profitability of $0.03 a share would have beaten the $0.02 analysts were targeting.

More metrics
There are plenty of metrics going the company's way. Programming costs and subscriber acquisition costs continue to decline. Conversion rates are holding steady. The monthly churn rate did grow from 1.9% to 2%, but CEO Mel Karmazin did point out that it was actually 1.954%. Yes, it is an increase. However, rounding makes it sound worse than it is.

If there were any disappointments in the report, they were a lack of raising guidance for the balance of 2012, the lack of initiated guidance for 2013, and no comments at all to discuss Karmazin's resignation that was announced the week before.

Google gets ready to Play
Google is ready to make a bigger push in music streaming. It announced on Monday a deal with Warner Music. The search-engine giant now has licensing pacts in place with all of the major record labels for Google Play.

It's just the latest development in a digital music realm that's starting to get uncomfortably crowded.

Apple (NAS: AAPL) also announced that it will delay iTunes 11 until late November, a move that may dovetail with renewed reports that the iEverything behemoth is talking with its music-label partners to join the masses with a streaming platform of its own.

Does Sirius XM know what it's doing by jumping into this very competitive market? Absolutely. It's all about attraction and retention. If Sirius XM's offering is strong enough on its own when it rolls out in the next month or two, the growing media maven will be able to reach out to more than just its core base of in-car subscribers. By the same token, offering a music discovery platform -- at a much lower price for receiver-based subscribers than what Pandora (NYS: P) charges premium accounts -- will keep its existing subscribers close and satisfied.

There is clearly a battle for eardrums. Right now, there's plenty of growth for everybody. Pandora and Sirius XM are growing revenue at double-digit rates. However, as more players jump into the market, there will be a shakeout.

Sirius XM has heard this all before. It grew through Apple's iPod craze, and now it's thriving as Pandora is serving up more than a billion hours of streams a month. With the company in its best financial state -- and trading at a record enterprise value -- the only game in town when it comes to satellite radio will continue to rock on.

Running of the bulls
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