Sirius XM Radio shareholders may sense better days ahead, fueled by optimism about new revenue streams, the launch of its iPhone software and the cash for clunkers car buying program.
The stock has climbed 20 percent so far this week, despite analysts' forecasts that the satellite radio company will post a loss and show it lost hundreds of thousands of subscribers when it reports second-quarter results on Thursday.
Wall Street is focusing on signs of economic stability, analysts say, and the growth potential of the company, created about a year ago by merging Sirius and XM Satellite Radio.
The financial risk has been reduced and now you are looking at a positive swing in EBITDA of more than $500 million over the course of the year, with much of it coming from cost cuts, said Barrington Research analyst James Goss. All of that seems to provide much more favorable outlook than it did before.
The shares jumped 14 percent on Tuesday to 54 cents a share on Nasdaq, where it was one of the most active issues.
Sirius already has about 19 million subscribers to its pay radio system, but its biggest source of new users is when consumers buy cars with satellite radios built-in.
The U.S. government's popular cash for clunkers incentive program has added spark to the idea that auto sales may rebound after a four-year decline. By allowing people to trade in old vehicles, the program has lifted industry-wide sales back above 11 million units on an annualized basis.
The program revives interest in car-buying, and Sirius converts about half of its users who get trial accounts when they buy a car into paying customers, Goss said.
They will have an increased number of car buyers who will have that option to consider, which should work to reviving some subscriber growth, even though it may not be anything like it had been for a number of years, he said.
When Sirius XM reports on Thursday, shareholders also will look for updates on the number of customers who downloaded software that lets the satellite radio service's programming play on Apple Inc's (AAPL.O) iPhone.
The iPhone App is seen as a way to introduce Sirius's news, talk, music and sports programming through means other than its traditional satellite-based platform.
They may see how much additional revenue comes from subscribers who signed up for Internet streaming of Sirius's content, as well as new charges tacked onto each bill to offset higher royalties that Sirius must pay to music rights holders.
The stock has risen more than four-fold since March, when John Malone's Liberty Media (LINTA.O) completed a cash infusion that resolved Sirius's looming debt deadlines in return for a controlling stake in the pay-radio company.
Gabelli & Co analyst Brett Harris rated the stock a buy last month, saying it represents an attractive equity investment. Sirius has no significant debt due until 2013, it has positive free cash flow, and the financial backing of Malone, he said.
Still, even Malone's money could not overcome the economic slowdown that has severely reduced sales of new cars. Sirius ended the first quarter with 18.6 million customers, losing 400,000 in the period, and it warned of a noticeable hit to its subscribers in the second quarter for the same reason.
J.P. Morgan analyst Lev Polinsky expects subscriber loss of about 400,000 in the second quarter and flat revenue, but he sees subscriber levels stabilizing in the second half of 2009.
Analysts on average expect the company to post a loss of 13 cents a share on revenue of $609 million, according to Reuters Estimates. (Reporting by Franklin Paul. Editing by Robert MacMillan)