Following today’s closing bell, Sirius (SIRI) announced that they were cutting their year end subscriber forecast to between 5.9 million and 6.1 million, down from previous guidance of 6.3 million subscribers year end. The updated guidance range represents total net additions of nearly 2.6 million to 2.8 million in 2006. They continued on to reiterate that the company’s first quarter of positive free cash flow may be reached as early as this quarter.
This is obviously bad news for Sirius, but the real question is how will it be received by the markets. In after hours trading, shares last exchanged hands at $3.99, down $0.18, a relatively small drop. Given the recent downgrade by Wachovia and negative research note from Bank of America analyst Jonathon Jacoby, the street may have actually been anticipating this event. The lackluster reaction to the companies positive Q3 report, in which they reaffirmed their guidance of 6.3 million year-end subscribers, further supports our view that many viewed their original estimates as overinflated.
If investors had foreseen this guidance revision, that would mean that a good deal of this news had already been priced into shares of Sirius. Also, while their subscriber forecast was reduced they maintained their time frame for achieving cash flow break even, going as far as saying, “We have consistently focused on disciplined growth and continue that focus as we look to generate positive free cash flow this quarter.” Given these two points, we advise against taking the guidance revision as reason for taking a short position in Sirius tomorrow, given the unfavorable risk to reward ratio presented by such a trade. Wait for the dust to settle around this announcement before acting upon it.
Disclosure: Joseph Urgo does not have a position in Sirius.
As mentioned in the research note Why Sirius Internet Radio Is Significant, Sirius.com visitors have been able to listen to Sirius Internet Radio for free both yesterday and today.
Judging from preliminary Alexa traffic stats, it looks as if Howard Stern and Sirius (SIRI) were successful in creating a good deal of buzz for their newest offering. As of 10:00 PM, Alexa shows Sirius as being the 768th most trafficked website in the world today, compared to their three month average ranking of 2,087th.
In classic Peter Lynch style, we decided to take their free preview for a spin and tuned into the Howard Stern show for a few hours. The service was very fast and the sound quality was superior to that of the majority of internet radio streams. Sirius was very well prepared for the traffic surge from a technical standpoint.
More interesting though, was the wide geographic differences between listeners dialing in to The Stern Show, with calls coming from countries such as Germany, China, and England. These callers demonstrate the global potential for Sirius Internet Radio. The market for Stern is not confined to the United States. Their stable of sports content should also have demand outside of the United States, with growing global interest in the NBA and NFL and the popularity of soccer worldwide.
As the end of their free trial approaches, this looks to have been a positive event for Sirius. However the two day spike in traffic will be meaningless if traffic levels return to their previous levels once the trial expires. The next week’s traffic data should give a much clearer look at exactly how effective this campaign really was.
Disclosure: Joseph Urgo does not have a position in Sirius.
On October 16th, Sirius Satellite Radio (SIRI) announced the launch of Sirius Internet Radio. This new service allows users to listen to more than 75 channels of Sirius programming, without a radio, for the standard monthly subscription fee of $12.95. To mark this launch, Sirius.com visitors will be able to listen to Howard Stern for free on October 25th and 26th.
A one week chart of Sirius will show that this news has been written off as insignificant by Wall Street. Shares have actually fallen from $3.88 to $3.80 in the six trading days since news of Sirius Internet Radio has been out. However, the launch of Sirius Internet Radio is a significant event for the company. By streaming their content over the internet, their programming is instantly much more broadly accessible to potential subscribers. While customers will still have to pay the same monthly fee to listen to Sirius online, they no longer have to purchase an equipped radio receiver. Sirius has amassed an impressive stable of exclusive content, the most noteworthy being Howard Stern. Sirius Internet Radio gives the company a second distribution channel to leverage this exclusive content, at very little in terms of cost.
Already leading the satellite radio industry in net subscriber additions for the past four quarters, Sirius Internet Radio should help bolster additions in the all important retail sales category, which has been dominated by Sirius since the signing of Howard Stern. It is reasonably optimistic to believe that this service could yield between 200,000 and 500,000 subscriber additions by the end of 2007. With a monthly fee of $12.95, that would translate to an additional $31,000,000 to $77,000,000 in annual subscription revenue. Additional subscribers will also help drive growth in advertisement revenue for the company. For Sirius to achieve positive free cash flow, they will need to continue to add to their subscriber count while keeping costs under control. Sirius Internet Radio will help the company do just that, as it costs virtually nothing to stream content over the web yet makes their programming available to anyone with internet access.
Disclosure: Joseph Urgo does not have a position in Sirius.
