National Geographic Programming Will Add To This Growth Story

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Sirius XM (NASDAQ: SIRI) announced the launch of a series of vignettes for listeners. The vignettes feature content from National Geographic. The vignettes are based on National Geographic's books and magazines.  Below, I will explain how this new programming will help Sirius XM generate increased revenue.

Financials

Sirius XM reported consolidated nine month revenues of $2.50 billion for the period ending September 30, 2012, compared to $2.23 billion for the same period in 2011. Consolidated net income for the nine months ending September 30, 2012 was $3.31 million, compared to $400,000 for the same period in 2011. Diluted income per share for the nine months ending September 30, 2012 was $0.49, compared to $0.05 for the same period in 2011.

Sirius XM announced second quarter 2012 revenue of $838 million, an increase of 13% over second quarter 2011 revenue of $744 million. Adjusted EBITDA for the second quarter for 2012 was $237 million, up 28% from $185 million for the second quarter of 2011. Free cash flow grew 39% to a record $230 million.

In the third quarter of 2012, Sirius XM announced revenue of $867 million, up 14% from third quarter 2011 revenue of $763 million. Adjusted EBITDA for the third quarter of 2012 was $245 million, up 24% from $197 million in the same quarter of 2011. Self-pay net subscriber additions improved by 2% year-over-year to 371,000.

Why Are Sales Increasing?

The rise in revenue is placed on Sirius XM's ability to broadcast programs with fun facts and introduce listeners to the strange and wonderful world around them. Sirius XM's programs explain issues to listeners in understandable and meaningful ways, inspiring them to explore the world, and exposing them to a weird, fascinating, and interesting environment.

"Sirius XM continued its exceptional performance in the second quarter, adding over 600,000 subscribers, which represents a post-merger record, despite the mixed macroeconomic trends. We also attained a record-level cash flow of $230 million - the highest single quarterly free cash flow figure in Sirius XM history," said Sirius XM CEO Mel Karmazin.

Over the past few months, Sirius has broadcast many interesting programs. It announced the return of 'Star Wars" celebration radio. It aired more than fifty live games over college football season's opening week. It broadcast exclusive Latin programming in celebration of the Hispanic heritage month. It launched an electoral college tour. It broadcast an exclusive special with Academy-award-nominated Writer/Director Paul Thomas. It launched the Publishers Weekly Radio and broadcast an exclusive town-hall event with Academy-Award winning filmmaker Quentin Tarantino. John Travolta and Olivia Newton-John celebrated the release of This Christmas and the 30 year anniversary of the hit film Grease on Sirius Radio.

"These strong net additions produced our best third quarter since the merger and exceeded third quarter 2011 subscriber growth by 34%,"noted Karmazin. "With almost 1.5 million net subscribers already added in 2012 and continuing growth in auto sales, we will significantly exceed our previous guidance of 1.6 million, marking our third increase in subscriber guidance this year and putting us on track for record post-merger net additions."

National Geographic

The National Geographic program will air throughout the day. "National Geographic is known for taking the world and explaining it to young people in understandable, usable ways. With out new daily features, National Geographic Kids brings new, fun information to kids live throughout the day," said Kenny Curtis, Sirius' Director of Kids and Entertainment Programming. This is just one of the new programs Sirius' will unveil this year. I predict that National Geographic programming will enable Sirius to increase its market share, resulting in more subscriptions and increased revenue.

In looking at Sirius XM's programming and financial report, it is clear that Sirius XM has improved its market position since 2011. Net subscriber additions have consistently increased. Sirius is operating at an efficient level.

Competitors

With a gross margin of 63%, compared to 39% for Cumulus Media (NASDAQ: CMLS), 38% for Pandora Media (NYSE: P), and 32% for Dial Global (NASDAQOTH: DIAL), and earnings per share (EPS) of $0.51, compared to $0.06 for Cumulus, -$0.19 for Pandora, and -$1.66 for Dial Global, Sirius appears to be doing better than its rivals. 

Cumulus Media recently signed a deal with Arbitron (ARB) for the use of its Arbitron diary and Portable People Meter (PPM) radio ratings services covering all 450 Cumulus stations in the 100 Cumulus radio markets currently surveyed by Arbitron. The agreement will enable Cumulus to figure out which programs are in highest demand and better improve its programming. 

Dial Global is an independent network radio company in the U.S. The company offers radio programs and provides an interactive voice response (IVR) phone system that helps radio stations answer phone calls, facilitate call-ins, and manage contests, text messaging, and polling. Dial Global also acts as a sales representative for independent third party providers of audio content. Dial Global provides audio to over 8,500 stations nationwide. Its programming includes the NFL, college football and college basketball games. Dial Global recently came to an agreement with the NFL network to extend its contract for radio broadcasts of NFL games through the 2017 season. This should provide a boost for the company, as the NFL is high in demand.

Meanwhile, Pandora is up 20% on news of solid December growth numbers, when its radio market share rose above 7% for the first time. Pandora has formed more than 1,000 partnerships, but radio is becoming an even more crowded market as new players like Google (GOOG) and even Apple (AAPL) have entered the market with free channels and streaming platforms. 

Conclusion

Based on its new programming and improving margins, Sirius XM appears to be a strong buy at the moment.


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