Last week Sirius XM (NASDAQ:SIRI) reported its Q4 and full year 2011 results. While for the year, the company beat subscriber guidance and added 1.7 million subscribers, it expects a relatively softer year 2012 for subs growth. Despite the fact that automotive manufacturers such as GM (NYSE:GM) and Ford (NYSE:F) are optimistic and the sales are expected to be up by 8% in 2012 amounting to 13.7 million units, Sirius XM expects to add only about 1.3 million subscribers.  Our current pricing model incorporates this softness, but to a greater extent. The company’s latest guidance implies a higher automotive subscriber forecast, and we’ll update our pricing model shortly.
Even though 2012 may not be as stellar as 2011 was in terms of net subscriber additions, the revenue trends will definitely be healthy and serve as a reminder of the strength of the company’s business model. As the price hike a toll on new subscribers, Sirius XM will find itself adding fewer subscribers but will compensate for this with higher revenues per subscriber. This revenue growth will continue in 2013 where price hikes should be reflected in full year results.
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Sirius XM is also looking to enhance its internet-based services to encourage subscribers to pay for an internet add-on. For these add-on subscribers, the services such as personalized radio on smartphones and other connected devices as well as on-demand radio music will be available for free. We’ll update our revenue per subscriber forecast to reflect this push.
Interestingly, Sirius XM has managed to reduce its programming costs (as proportion of revenues) over last few years and expects to continue to do so in 2012 as well. This is good news for investors and reinforces our confidence in Sirius XM’s business model.
Our price estimate for Sirius XM stands at $2.18, which is under review. The current estimate implies a slight premium to the market price.Notes:
- Sirius XM’s Q4 2011 earnings transcript [↩]