SIRIUS XM satellite service provider

Satellite radio service provider SIRIUS XM Radio Inc. (SIRI - Analyst Report) received a shot in the arm as Standard & Poor's (S&P) upgraded its credit rating from "B+" to "BB-". S&P declared that improved operating performance and declining debt leverage of SIRIUX XM are the primary reasons for this upgrade.

Overall, the S&P rating outlook for SIRIUS XM is stable. Recently, the company achieved a milestone, touching the 20 million subscriber base, which is a historic high. SIRIUS XM is now steadily moving toward stability, following the bankruptcy it was facing just a year ago.

During the third quarter of 2010, SIRIUS XM reported a significant improvement with respect to several operating metrics. Average revenue per user was $11.81 compared to $10.09 in the year-ago quarter. Conversion rate was 48.1% compared to 46.2% in the year-ago quarter.

At the end of the third quarter, the company's debt leverage was 9.9x compared to a massive 29.5x at the end of fiscal 2009. Debt-to-capitalization ratio was 0.91 compared to 0.97 at the end of fiscal 2009.

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 XM and SIRIUS satellite radio services. Improving U.S. economic conditions that resulted in the recovery of auto sector sales together with better-than-expected consumer spending enabled the company to vastly improve results.

SIRIUS XM owns an extensive satellite network covering the whole of the U.S. that provides audio content streamed over 130 channels. After Comcast Corp. (CMCSA - Analyst Report), the company is the second-largest entertainment subscription service provider in the U.S.

SIRIUS XM declared that despite facing severe economic turmoil and competitive pressure, it acquired the last 10 million subscribers faster than the first 10 million. The company now expects to add 1.3 million net subscribers in 2010, much higher than its previous prediction of 1.1 million. Importantly, this is the fourth time that management has raised its subscriber guidance for 2010. Management is hopeful that its year-end 2010 subscriber base will touch 20.1 million.

On December 9, SIRIUS XM announced that the company entered into a new 5-year agreement with its star performer Howard Stern who hosts a talk-show in SIRIUS XM. Many analysts consider the performance of Howard Stern as one of the main reasons for the company's gradual recovery in last couple years. Stern's existing contract size is $500 million for 5 years that will come to an end by end 2010. However, the company did not disclosed the financial terms of the new contract.

SIRIUS XM competes with other broadcast radio companies such as Cumulus Media Inc. (CMLS - Analyst Report) and Westwood One Inc. (WWON - Snapshot Report). We maintain our long-term Neutral recommendation for SIRIUS XM.

XM vs. Sirius Satellite Radio

Coke vs. Pepsi, McDonalds vs. Burger King, Yankees vs. Red Sox are all examples of some of the most well known rivalries in American culture. Is it time to add XM vs. Sirius to this list? Well, the significance of this rivalry is certainly up for debate, however there is no arguing that it has been bitter battle to this point.



I am of course talking about the satellite radio space, where subscribers receive hundreds of programming options with CD quality reception all across the country. XM and Sirius have many similarities, such as programming and hardware options, making it difficult for consumers to decide between the two. If you’re a Howard Stern junky or addicted to the NFL then Sirius is likely your choice. If Oprah is more your speed or you can’t miss an MLB game then XM Radio is the better choice for you.

So who is winning the satellite radio battle in terms of market share? Well, currently XM has 7.1 million subscribers to Sirius’s 5.1 million. But, who will be winning after the holiday season and into next year? The number of people visiting both Sirius.com and XMRadio.com can be used as a proxy for the future market share of each product. Historically, each site has received similar amounts of people per month, indicating an equal level of consumer interest in both brands. Interesting to note, last month, at the height of the 2006 Holiday shopping season XM and Sirius experienced their largest differential in site traffic ever! While XM skyrocketed past the 1.4 million mark, Sirius hovered to 1.1 million.

When Sirius signed Howard Stern as their marquee radio personality in 2004 they did so with the expectation that he would boost subscriber numbers and thus gain market share on XM. While the signing of Stern definitely increased subscribers, it is clear now, 2 years later, that XM remains the industry leader. With 2 million more subscribers and 350,000 more people visiting their site in November, 2006, it appears the XM’s number one status is secure.