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SIRIUS XM Radio Inc. (SIRI - Analyst Report) posted robust financial results for the second quarter of 2012 with record high revenue, EBITDA, free cash flow, and net subscriber addition. The strong performance was mainly due to impressive management execution on the back of rising auto industry sales. As per management, the growth momentum of the company will further expand in the rest of 2012 and has raised its financial outlook for the second half of 2012.

Despite price rise of its services, SIRIUS XM maintains its churn rate. Solid conversion rate and an effective marketing strategy helped the company to achieve this milestone. At present, approximately two-thirds of all cars sold in the U.S. come with in-build SIRIUS XM satellite radio service. Apart from its healthy subscription-based business, the company is slowly growing its advertising business. We, thus, reiterate our Outperform recommendation on SIRIUS XM.

In January 2012, SIRIUS XM raised the prices of its services. Despite this, average self-pay monthly churn rate in the second quarter was 1.9%, remaining same year over year. Customer Conversion rate was 45%, remaining same year over year. Management is hopeful that its churn rate will remain more or less same as the previous year.

Meanwhile, SIRIUS XM is currently fighting a hostile takeover bid from Liberty Media Corp. (LMCA - Analyst Report), its most powerful creditor. Liberty Media has filed a new application to the U.S. Federal Communications Commission, in which the company stated its intention to acquire more than 50% of SIRIUS XM, so that it can take full control of the Board of SIRIUS XM.

Liberty Media withdrew its previous application with FCC to de facto control SIRIUS XM. Instead, the company is now willing to get a full control. Liberty Media at present has 49.6% stake in SIRIUS XM’s total outstanding shares.

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