by Demian Russian
In a research note issued on the heels of Sirius XM Radio (NASDAQ: SIRI) raising it’s full-year 2010 net subscriber addition guidance on Friday, J.P Morgan media analyst Lev Polinsky reiterated his NEUTRAL rating on SIRI. Viewing Sirius XM’s new full-year 2010 net subscriber addition forecast for ~1.3 million, and a total full-year sub count of ~20.1 million, as “in line” with his prediction for 1.29 million net full-year sub additions, Polinsky did not see Sirius XM’s raised subscriber guidance announcement implying a change to his numbers, although Poinsky did note that the new guidance “suggests further upside may be possible.”
“A rapid jump in new car sales could push up SAC (Subscriber Acquisition Costs), leading to near-term pressure on margin. However, as of now the company does not expect the higher subs guidance to lead to EBITDA downside.”
– Lev Polinsky, J.P. Morgan
Polinsky expects Sirius XM to announce Q3 earnings in early November. Key points that he will be watching for is “any progress on the status of Howard Stern” as well as the possibility of escalating auto sales affecting near-term profitability. He sees a sudden jump in auto sales possibly pushing up SAC (Subscriber Acquisition Costs) and putting “near-term pressure on margin,” as the reward from the SAC investment wouldn’t be recouped until later on. However, he did point out that “as of now” Sirius XM did not expect their new raised subscriber guidance to push EBITDA down. Polinsky noted that his full-year 2010 EBITDA projection of $610 million exceeded Sirius XM’s own forecast for $579 million.
Following Sirius XM’s Q2 results, Polinsky issued a report in early August reiterating his NEUTRAL rating and expressing valuation concerns. Polinsky saw limited upside, even when factoring in exceptional above-peer performance and attributing value to the company’s ~$8 billion in NOLs (Net Operating Losses). He pointed to other subscription-based companies for comparison which trade at only between 5-7x full-year 2011 EBITDA estimates. “Even assuming an exceptional F’11, with $100M in upside to our current EBITDA estimate, and crediting the company for part of the value of its NOLs, we get to a 9.9x multiple,” Polinsky explained.
Sirius XM’s stock is up over 20% since J.P Morgan’s early August report.
Position: Long SIRI
Contact the Author: demianrussian@satelliteradioplayground.com
It’s amazing what the short sellers will write to TRY and bring Sirius down. The Shorts are negative…but always write Long Sirius amazing…Sirius’ current Auto lineup is always an upside with subscriber growth and even further upside with the write-offs and expense reduction. I read this article thinking it’s a negative for Sirius to have increased subscriber growth…..hahahah…priceless.