Sirius XM Satellite Radio reported record revenue and earnings Tuesday as it opened the door on a new product: Internet radio. The company's 2012 revenue grew 13% to a record $3.4 billion while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 26% to $731 million. Net income ballooned to $3.47 billion because of a $3 billion income tax benefit.
As previously announced, Sirius XM added 2 million subscribers in 2012, the best year since 2007, the year before Sirius and XM merged. The company ended the year with 23.9 million subscribers. To put that in perspective, Sirius XM is not far behind Netflix, which ended 2012 with 25.5 million paid U.S. subscribers to its streaming service (it had another 8.2 million subscribers to its DVD rental service). On the other hand, on-demand music subscription services like Spotify and Rhapsody have about 1 million subscribers apiece in the U.S.
Sirius XM subscribers will soon get a Pandora-like listening option in addition to the satellite radio service. During Tuesday morning's earnings call, CEO Jim Meyer gave an overview on the overdue Internet radio service that previous CEO Mel Karmazin first announced last year. Called MySXM, the service will allow users to create personalized versions of existing Sirius XM music stations. Subscribers can start with channels they already enjoy and fine-tune the music using "unique slider controls."
MySXM will be available on all platforms, such as iOS, Android and the web. Meyer did not offer a timeline for its launch, saying MySXM is "upcoming" and is now in consumer beta.
Sirius XM is intent on keeping the customers it has. Meyer believes the service will keep the customer engaged in the home and will be a "defensive play" in the automobile, where Sirius XM satellite radio competes with Pandora and Clear Channel's iHeartRadio Internet radio services. Meyer doesn't think two services would be overkill. He added that Sirius XM believes it can deliver a better experience with lower churn in a true connected car.
Sirius XM ended 2012 in good financial shape. To reduce some of its long-term debt, the company paid down more than $1 billion in high-coupon, short maturity debt last year and replaced it with $400 million of 10-year, 5.25% debt and a $1.25 billion credit facility. After paying a special dividend of $327 million in December, the company has $523 million in cash reserves, and it's sitting on a $1.2-million deferred tax asset.
But don't expect the same subscriber growth this year that put Sirius XM's balance sheet is such a good position. Sirius XM reiterated its previous guidance of 1.4 million total net subscriber additions, down from 2 million in 2012.