The satellite radio service provider Sirius XM (NASDAQ:SIRI) will release its Q1 2012 earnings on May 1st, and as always, investors will watch out for net subscriber additions and the outlook for the remaining year. We expect Sirius XM’s net subscriber additions to remain healthy driven by improved auto sales from car makers such as GM (NYSE:GM), Ford (NYSE:F) etc. Although there will be slight impact of price hikes on net additions, the momentum in car sales should more than compensate for it. Furthermore, investors should keep an eye on update regarding the company’s legal battle with SoundExchange as the outcome can significantly impact how the Sirius XM acquires the content in future.
The U.S. auto sales in the first quarter of 2012 have been healthy, growing at over 13% compared to the same period last year.  The upbeat auto sales bode well for Sirius XM as automotive channel is by far the most critical channel for the company to acquire incremental subscribers. It will be interesting to see how increased pricing affects subscriber churn and additions. We feel that the subscriber growth will be robust, and the company may beat its own subscriber guidance for the whole year 2012.
Furthermore, Sirius XM’s on going legal battle with SoundExchange is of great importance to investors. As we have written previously, if SoundExchange gets its way, the royalty rates will rise significantly in the future leading to reduced profits for Sirius XM and substantial downside to its stock (see Sirius XM And SoundExchange Square Off In The Battle Over Royalty Rates for details)
As the year progresses, Sirius XM might also face increased competitive pressure from other radio companies such as Pandora (NYSE:P) and Clear Channel Radio. Pandora has been increasingly pushing in automotive sales and relies on advertising. Thus, staying ahead in terms of quality content will be critical for Sirius XM as it charges a monthly subscription fee.
Our price estimate for Sirius XM stands at $2.26, implying a slight premium to the market price.Notes: