When you mention cult stocks that trade around a buck, one of the first names that pops to mind is Sirius XM Radio (SIRI). The satellite radio purveyor is a classic case of a company with an exciting new technology with the potential to revolutionize an entire industry -- in this case the so-called "terrestrial" radio space. To a large extent, that revolution has indeed taken place. Yet, since the July 2008 merger of XM Satellite Radio and Satellite CD Radio (Sirius), the new SIRI shares have had a pretty tough slog. Although the shares now trade nearly nine times higher than their March 2009 nadir of a measly 6 cents, they are still light years away from the $2.68 they traded at just two years ago.
So, what's the verdict on Sirius XM stock? will traders still tune in to SIRI, or will they turn their portfolios off to satellite? Here's three reasons why the next move for Sirius will be higher.
Strong Earnings. In May, Sirius stock reported very strong fiscal first-quarter earnings of $41.6 million, or a penny per share, on revenue of $670.6 million. The bottom-line figure beat Street expectations for flat earnings. The company also said it added 171,441 subscribers in fiscal Q1, a far cry from the loss of 404,422 in the same quarter a year ago. The cost of those new subscribers also fell from $61 to $59. The company's free cash flow missed expectations. However, the lack of free cash was due to Sirius paying off its most expensive debt earlier than anticipated. Sirius actually paid off $61 million in debt that came with a price tag of 15% interest, and that reduced debt will likely contribute to its bottom line in the coming quarters.
Strong Subscriber Growth.On July 7, Sirius announced that it added 583,249 net subscribers in the second quarter. That number compared extremely favorably with the 186,000 in the second quarter of 2009. The company also raised subscriber gain guidance for the year, saying it expects net new subscribers of approx. 1.1 million. The previous full-year estimate was for just 750,000 new subs in the year. The gains in the second quarter give Sirius a record-high 19,527,448 subscribers, an increase of more than a million subscribers from the quarter ended June 30, 2009.
Zero Competition. The strong subscriber growth means that consumers now are opting to spend money on discretionary items such as satellite radio. The more discretionary income available, the better Sirius will do. That's because unlike other media choices such as cable or satellite TV, Sirius has no competition in the satellite radio space. They are the one and only customer option, and as such they are perfectly positioned to benefit from any boom in the willingness to adopt their king of service.
As of this writing, Jim Woods did not own a position in Sirius XM stock.
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