Satellite radio service provider SIRIUS XM Radio Inc. (NASDAQ:SIRI), which was facing bankruptcy just a year ago, is now gradually moving towards stabilization. Yesterday, the company announced that it will generate significant subscriber growth in 2010. SIRIUS XM now expects to add 750,000 net subscribers in 2010, much higher than its previous prediction of 500,000.

SIRIUS XM’s business depends to a large extent upon automakers. The sale and lease of vehicles with satellite radios is the most important source of revenues for both the XM and SIRIUS satellite radio services. Improving U.S. economic conditions have resulted in the recovery of auto sector sales, together with better-than-expected consumer spends, prompting management to present a rosy picture.

SIRIUS XM added 171,441 net subscribers during the first quarter 2010. This means for all the remaining three quarters of 2010, the company should add an average of nearly 12.5% more subscribers. We believe improvement in the conversion rate and a reduction in self-pay monthly churn rate are the main reasons for this optimism.

Furthermore, SIRIUS XM now expects proforma revenue for full fiscal 2010 to be $2.75 billion, compared to $2.7 billion estimated earlier. Proforma adjusted operating income is likely to be $575 million, compared to $550 million predicted earlier. In its first quarter 2010 earning conference call, management predicted that SIRIUS XM will generate positive free cash flow for full fiscal 2010. Now revised estimates more categorically indicated that free cash flow for 2010 will exceed $100 million.

Earlier in March 2010, SIRIUS XM boosted its liquidity profile by refinancing a part of its $1.8 billion outstanding debt maturing in 2 years. The company offered $800 million of senior notes with a coupon of 8.75% maturing in 2015. Management is also negotiating with its star performer Howard Stern, whose five-year $500 million contract will come to an end in December 2010.

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