Morgan Stanley analyst Benjamin Swinburne issued the following note on Sirius' Q4 performance:


Sirius Satellite Radio Quick Comment:

ARPU Comes in Light due to Holiday Rebates

ARPU Behind, In-Line Churn: SIRI reported mixed 4Q07 results this morning marked by weaker than anticipated ARPU and pre-marketing EBITDA margins, but in-line churn. The increased impact of subscriber mail-in rebates in the quarter led to fully loaded ARPU of $10.05 coming in $0.49 below our estimate. Pre-marketing EBITDA of $52.8 mm came in below our $79.1 mm estimate, implying a 21% margin compared toour 30% expectation for the quarter. However, roughly $15 mm of the pre-marketing EBITDA shortfall came from catch-up payments related to the increased performance rights royalty license. Excluding the incremental CRB payments, the 4Q07 pre-marketing EBITDA would have been approximately $68 mm.

What's new: SIRI reported 4Q07 revenue and adjusted EBITDA of $249.8 mm and $107.2 mm, respectively. Weaker than anticipated “fully-loaded” ARPU of $10.05 versus our $10.54 estimate was predominately attributable to the negative impact of increased mail-in rebates in the quarter. Reported churn of 2.3% came in in-line with our estimate, while 4Q SAC of $90 came in $2 below our estimate, or down 13% from 4Q06. Lower SAC was likely attributed to fewer retail subsidies and commissions due to a higher OEM sub mix in the quarter. SIRI pre-reported 4Q07 subscriber results which showed weak retail growth leading to YE07 subscribers coming in short of our 8.41 mm by roughly 90K. Retail gross additions declined approximately 42% YoY compared to -25% in 4Q06.

Position - Long Sirius, XM