Sirius Earnings Improvements Don't Help Customer Retention, Other Problems

(MoneyWatch)  Sirius XM (SIRI) CEO Mel Karmazin has again tried to strike an upbeat tone at the company's latest earnings announcement. But, again, the business fundamentals have to make you wonder if the company has a viable long-term future.

Good news at Sirius XM (SIRI) was tempered by a hard dose of reality on Nov. 5. Sure, the top satellite-radio provider added subscribers, increased revenue, and narrowed losses in the third quarter. At the same time, Sirius is girding for slower growth than in the past, and analysts remain concerned about the company's ability to control costs.

Start with customers. It's hard to have a business without one, and although the number of subscribers between the second and third quarters did go up, the trend (red line) is still down, as the graph below shows.

Certainly there was a jump, but if you consider that it took place during the same time as the cash for clunkers government program to aid auto sales, and that automobiles are a major source of acquiring customers, it's not unreasonable to assume that much of the improvement might have been artificially pumped up. In fact, as the filed 10-Q notes, the decrease in subscribers in the third quarter between 2008 and 2009 was "principally the result of 671,341 fewer paid promotional trials due to the decline in North American auto sales." Without cash for clunkers, losing even more would have been likely, and you have to wonder whether there would have been any increase at all.

Churn is up year-over-year as well, with the first nine months of 2009 showing 2.1 percent, versus 1.7 percent in 2009. Furthermore, conversion rates for trials into paid subscriptions are down over the first nine months from 49.1 percent in 2008 to 45.3 percent in 2009. So the company is losing customers at a faster rate and is converting fewer prospects into become paid customers.

If you look at the first nine months, again, year-over-year subscribers have gone down by 488,126. And although average revenue per user (ARPU) is up over the nine months from $10.33 a month to $10.42 a month, that isn't a reason to rejoice. The increase seems likely due to Sirius XM increasing its rates, not from expanded use of the service. As the subscribers trend down, costs had better as well.

And then there is the ongoing issue over share price and the need to bring it up to keep the stock listed. The threshold is a dollar a share. The current Sirius price as of Friday afternoon is just a hair over 63 cents. This is not good news, no matter how the management team would like to paint it.

Image via Flickr user jack_spellingbacon, CC 2.0.