Satellite radio service provider SIRIUS XM Radio Inc. (SIRI: 1.0025 +0.0035 +0.35%), which was facing bankruptcy just a year ago, is now steadily moving toward stability. Yesterday, the company announced that it expects to generate significant subscriber growth in 2010. SIRIUS XM now expects to add 1.1 million net subscribers in 2010, much higher than its previous prediction of 750,000. Importantly, this is the third time that management has raised its subscriber guidance for 2010.SIRIUS XM added 583,249 net new subscribers in the second quarter of 2010, indicating a substantial sequential growth of over 240%. This astonishing net subscriber addition helped SIRIUS XM to end the first half of 2010 with a record high total subscriber base of 19,527,448.
SIRIUS XM’s business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both the XM and SIRIUS satellite radio services. Improving U.S. economic conditions have resulted in the recovery of auto sector sales together with better-than-expected consumer spends prompting management to present a rosy picture.
In addition to massive net subscriber addition, SIRIUS XM also declared three more encouraging subscriber metrics. Gross subscriber addition increased 46% year over year and deactivation reduced 8% year over year.
The conversion rate from trial to self-pay subscriptions rose to 46.7% in the same quarter from 44.3% in the year-ago quarter. The monthly self-pay customer churn rate was 1.8% during the second quarter of 2009 compared with 2% in the prior-year quarter.
Nevertheless, we believe SIRIUS XM is still not out of danger. Despite the best ever subscriber results after the merger of SIRIUS and XM, the growth of the combined entity is far below the pre-merger level.
In the first half of 2010, SIRIUS XM added 754,690 net subscribers while in the first half of 2008, the two companies posted a combined net subscriber addition of 1.2 million. Similarly, the conversion rate from trial to self-pay subscriptions was 46.7% in the second quarter 2010 compared to a whopping 53.4% in the second quarter 2008.
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