Sirius XM Radio Inc. (SIRI), expects its 2012 subscriber growth momentum to reduce this year, but expects an annualized revenue gain. It is believed that reduction in paid promotional subscribers is the primary reason for the lack of growth expectations.
Sirius XM reported that it has added 2 million subscribers in 2012 and has ended the year with a total customer base of 23.9 million marking a 9.1% annualized growth. Net self-pay subscribers last year climbed 30% to touch 1.6 million, the best performance by the largest satellite radio broadcaster in the U.S. since 2008.
The New York based company expects to add 1.4 million net subscribers in 2013 and forecasts self-pay net subscriber additions to remain flat at 1.6 million compared to 2012.
Lack of growth prediction may be due to company’s policy of providing a conservative outlook for the future. Sirius XM was expecting net subscriber additions of 1.3 million for 2012 but ended the year with addition of 2 million subscribers.
Innovative products like internet radio applications on Google Inc.’s (GOOG) android-based phones and Apple Inc.’s (AAPL) devices along with on demand programming features will allow the company to end 2013 with a subscriber base of more than 25 million.
Following the cautious outlook Sirius XM expected its revenue to reach $3.3 billion at the end of 2012. The company which had a fabulous 2012 expects to meet or exceed its 2012 guidance, when it comes up with its full year revenue.
Sirius XM expects 2013 revenue to touch $3.7 billion representing a yearly growth of 12.1%. Additionally, the company’s excellent customer service and cost effective strategy is expected to deliver a double digit adjusted EBITDA and free cash flow growth.
The new deal with top customer General Motors Company (GM) may force Sirius XM to lose some paid promotional customers as, according to the new arrangement the auto giant has stopped payment of promotional money to Sirius. However, we believe the company may exceed its year end expectations as Toyota Motor Corporation (TM) has standardized Sirius XM radios on its entire vehicle line up.
We maintain our long-term Neutral recommendation on Sirius XM Radio. However, it holds a short-term Zacks Rank #4 (Sell).
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