Sirius XM Recovers from Near-Bankruptcy; Best Quarter in Two Years (SIRI)

Sirius XM (SIRI)

Sirius XM radio has been on an interesting journey these last few years. About three years ago, Sirius Satellite Radio was performing very well, with one major competitor – XM Satellite Radio – in its way. Two years ago, the two companies merged, in a deal that many thought would be an unquestionable success. Last year, however, the merged company saw that success would not come easy. The company was close to filing for bankruptcy protection, and saw their share value fall to a measly 5 cents. In the last year or so, has the company been able to recover, or is this service nearing extinction?

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Stock Analysis

When Sirius reported some second-quarter numbers this morning, the company seemed to be pretty pleased with their progress. CEO Mel Karmazin called it “the best quarter of gross additions, deactivations, and net additions since the merger” two years ago. Last year the company saw a decline of 185,999 subscribers, but this year they saw a growth of 583,249 subscribers. The company’s total number of subscribers is currently 1.1 million higher than it was at this point last year. Sirius also saw an improvement in conversion rate (the percentage of customers who purchase a subscription after their free trial expires) from 44.3% to 46.7%. Additionally, deactivations fell 8% from last year.

Although it is clear that the company has made strong improvements in the last year, the company is still performing below 2008 performance levels, before the two companies merged. In the first half of 2010, the company has seen a growth of 754,690 subscribers, but in the first half of 2008, the two companies saw a combined total growth of 1.2 million subscribers. Similarly, Sirius XM’s conversion rate of 46.7% may be very good, but it falls below XM Satellite’s conversion rate of 53.4% it experienced in Q2 2008. While it is true that the company is still below 2008 performance levels, it is important to remember that much of this downturn was caused by the financial crisis, not by any particular fault of Sirius or the merger. With the recession, the country saw a significant decrease in new car purchases, which has had a direct impact on the amount of new subscribers.

What has been the response to this announcement? Sirius itself seems quite pleased with the results, and has also increased its guidance for the rest of the year, anticipating 1.1 million subscriber growth this year (compared to its most recent prediction of 750,000, which had already been increased from earlier estimates). And building on the confidence of Sirius, some analysts have upgraded the stock, and in turn, investors are sending shares upwards. As of late-morning trading, Sirius shares were up about 6% to $1.00. The financial recovery still is not complete, and although the satellite radio market is tough, it seems like Sirius XM will be improving along with the economy and they will remain on the air for now.

Sirius XM Commentary:

• Where Will Sirius XM’s Growth Come From – An incredibly detailed look into a number of ways in which Sirius XM could grow its business.
• The Markets and Sirius XM: Don’t Believe The Hype – Reasons why this one individual doesn’t let himself get caught up in the hype of the markets, and how it applies to Sirius.
• The Single Biggest Threat to Sirius XM – In this interview, what does this analyst think is the biggest threat to Sirius XM? Read to find out

More Stocks in the News:

• Toyota Is Changing How It Develops Cars – Toyota (TM: Charts, News, Offers) is increasing their testing process in hopes to avoid more recalls.
• Samsung forecasts record 2Q operating profit – Samsung Electronics Co. is anticipating a huge jump in profit that would been its previous record high.
• Borders Group Inc. launches electronic book store – Borders Group (BGP: Charts, News, Offers) has finally launched their e-bookstore as it attempts to catch up with Amazon (AMZN: Charts, News, Offers) and other major competitors.

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