We upgrade our recommendation for SIRIUS XM Radio Inc. (SIRI) to Neutral, which means the stock will perform mostly in line with the broader market. The company’s fourth-quarter 2009 financial results came in ahead of the Zacks Consensus Estimates. Significant amount of subscriber growth, improvement in conversion rate in trial to self-pay subscription, increase in ARPU and decline in customer churn rate are the other important positive factors in the recently concluded quarter.
All these developments enabled SIRIUS XM to generate more than $100 million of free cash flow in 2009, for the first time in the company’s history. In spite of these positives, we remain concerned about the emergence of alternative technology of commercial-free Internet radio and highly leveraged balance sheet of the company.
The merger between SIRIUS Satellite Radio and XM Satellite Radio, the two erstwhile competitors, enabled the merged entity to generate significant business synergies. The company announced that it generated significant subscriber growth during the fourth quarter of 2009.
SIRIUS XM added 257,028 net subscribers during that quarter, which enabled it to end 2009 with a total subscriber base of 18,772,758. Net subscriber addition reflects an improvement of more than 151% sequentially and is the highest since the third quarter of 2008. SIRIUS XM’s self-pay subscriber base increased by 247,182 in the fourth quarter to 15,703,932 subscribers at the end of 2009.
Future financial outlook given by SIRIUS XM is also positive, as management expects full year 2010 revenue to exceed $2.7 billion. The company also projected the net addition of more than 500,000 subscribers in 2010. Adjusted operating income, for 2010, is likely to reach $550 million, an improvement of 20% year over year.
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