Sirius XM Meets Profit Estimates And Beats On Revenues

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Satellite radio provider, Sirius XM (NASDAQ:SIRI), sustained a steady rise in its subscriber base in the third quarter of 2014, on the back of healthy growth in new vehicle sales in the U.S. The company’s overall subscriber base increased 5% year over year to 26.7 million, and the self-pay subscriber base went up nearly 7% to 22 million. During the quarter, the company added a total of 432,817 subscribers, including 379,598 self-pay subscribers. [1] The increase in Sirius XM’s total and self-pay subscribers in the third quarter is almost similar to its second quarter figures.

Fueled by robust growth in number of subscribers and a marginal increase in average revenue per user (ARPU), Sirius XM’s revenues jumped 10% to $1.06 billion, which was slightly ahead of the market consensus of $1.04 billion. In line with the street estimates, the company’s net income more than doubled to $136 million or $0.02 per share, from $63 million or $0.01 per share in the same quarter last year. Following its Q3 results, the company raised its full year revenue guidance to $4.15 billion from its last quarter guidance of $4.1 billion. [1] It is worth noting that this is the second occasion this year, when Sirius XM has raised its full year revenue guidance.

Our current price estimate for the company stands at $3.58, which is about 10% above the current market price.

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See our complete analysis for Sirius XM

Future for Subscriber Growth Looks Good

While Sirius XM’s gross subscriber additions suffered in the first quarter due to a slowdown in new vehicle sales in the U.S., they picked up in the second and the third quarter as new vehicle market performed relatively better. We expect the company’s subscriber growth to continue in the future, albeit at a slower pace. The brisk growth phase that the satellite radio provider experienced over the last couple of years, is slowly coming to an end. Sirius XM’s penetration rate in the new car market has somewhat stagnated at 70%, and total number of disconnections has gone up with an increase in the number of subscribers, aligning to form a fairly stable monthly churn rate. In fact, the company’s monthly churn rate in Q3 2014 was 10 basis points higher than it was in the year ago period. [2]

Although the new car market is saturating, the company remains hopeful about its growth prospects as it banks the next wave of growth on increased penetration in the used car market. There is some merit to this claim, though Sirius XM’s radio equipment is present only in about 20%-25% of the vehicles in the U.S. Moreover, there are about 65 million satellite enabled vehicles in the U.S. at present and Sirius XM’s conversion rate in this arena is low, at around 30%. The company is making some progress on the used car front as more than 14,000 dealers are now involved in its direct-to-dealer pre-owned program, up from 12,100 at the end of Q1 2014 and 100 in 2010. In fact, Sirius XM has added 1,000 dealers to this program in the last three months. [2]

Profitability Continues to Improve

Sirius XM’s adjusted EBITDA margins jumped 530 basis points from 30.7% in Q3 2013 to 36.0% in Q3 2014, despite 13% rise in operating expenses. Adjusted EBITDA soared 29% year over year to its record value of $381 million. In terms of EBITDA margins, Q3 2014 turned out to be the best ever quarter for the satellite radio provider, as its margins ticked up 30 basis points from its previous best of 35.7% (Q2 2014).

So far, the year 2014 has been very good for the satellite radio provider’s EBITDA, given that it improved significantly in the first and second quarters as well. Sirius XM is gaining operating leverage with its steady top line growth, which is helping its margins. At the beginning of 2014, the company projected its adjusted EBITDA would be around $1.38 billion for the complete year, but it raised its guidance to $1.45 billion mid way through the year, encouraged by a couple of strong quarters. Although now Sirius XM has lowered its adjusted EBITDA outlook marginally to $1.425 billion, it shouldn’t be a cause of concern for investors given that it has raised its free cash flow guidance from $1.10 billion to $1.12 billion. [3]

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http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=817666
Notes:
  1. Sirius XM Reports Third Quarter 2014 Results, Sirius XM, Oct 28 2014 [] []
  2. Sirius XM’s Q3 2014 earnings transcript, Oct 28 2014 [] []
  3. Sirius XM Reports Third Quarter 2014 Results, Sirius XM, Oct 28 2014 []