Sirius XM’s Strong Q2 Subscriber Growth Indicates That More Is Coming

+22.18%
Upside
4.03
Market
4.92
Trefis
SIRI: Sirius XM logo
SIRI
Sirius XM

Sirius XM‘s (NASDAQ:SIRI) recently reported Q2 2015 results were exactly in line with the consensus estimates, as it reported a strong increase in subscriber additions driven by a notable improvement in conversion and the retention rate. The company added a total of 692, 000 subscribers during the quarter, which was reportedly its best quarterly performance since 2007. [1] The churn rate was down to just 1.6%, reflecting a year-over-year decline of 20 basis points and the lowest value since Sirius and XM merger. Despite the marginal slowdown in new vehicle sales, the satellite radio company was able to increase its subscriber additions with a marginal increase in new vehicle penetration rate, and a significant rise in used car trials.

Encouraged by this, Sirius XM even raised its full year guidance from 1.4 million subscriber additions to 1.6 million. Sustained inroads into the used car market, steady growth in new car sales, household plans and technological advancements can help the company achieve its revised target. It must be noted that this was Sirius XM’s second consecutive upwards revision in number of subscriber additions. At the start of the year, the company had guided its 2015 subscriber additions at 1.2 million.

While Sirius XM’s topline growth was good, $108 million paid in pre-tax lawsuit settlement charges related to the pre-1972 dispute over royalties pummeled its profits, with net income falling 14%. Adjusted EBITDA on the other hand climbed 12% to record a value of $415 million. On the topline front, total revenues increased a solid 8% to reach the best ever quarterly figure of $1.12 billion. For the full year, the company raised its guidance marginally from $4.47 billion to $4.5 billion. [1]

Relevant Articles
  1. Down 10% Since 2023, Will Sirius Stock Recoup These Losses After Q4 Results?
  2. What To Expect From Sirius’ Q3 After Stock Down 28% This Year?
  3. What’s Next For Sirius Stock After A 26% Fall This Year?
  4. Sirius Q2 Earnings: What Are We Watching?
  5. What To Expect From Sirius XM’s Stock Post Q1?
  6. Sirius Stock Down 30% So Far in 2023, What’s Next?

Our current price estimate for the company stands at $3.82, implying a discount of about 5% to the current market price. However, we are in the process of updating our model in light of the recent earnings release.

See our complete analysis for Sirius XM

Used Car Market

Sirius XM stated that the company’s conversion rate in new and used car markets were at record highs in the second quarter, following a robust first quarter. Trial starts in the used car space increased 33% in the second quarter and the company now has 17,000 franchise and independent  dealers registered in its pre-owned program, reporting sales data of used cars. This figure was just 100 back in 2010. Additionally, Sirius XM has enrolled more than 7,000 dealers in its service lane programs, wherein dealers offer trials to customers who bring in their cars for servicing. [2] It has even signed several agreements with dealer management service providers and intermediaries, to facilitate more trials for used car owners.

During the Q2 earnings call last year, the management stated that there are about 65 million satellite enabled vehicles in the country, and the figure is likely to grow to 120 million in five years and 150 million in 10 years. CFO David Frear expects used car trials to surpass new car trials in the foreseeable future and double in the next decade. These numbers suggest that the company is extremely confident about potential growth in the used car market.

Mobile App And Household Plans

Sirius XM has mentioned in the past that it is driving customers and “trialers” to its mobile app, enhancing engagement outside cars. A while back, the company had announced that it plans to introduce a streaming platform, with apps for iOS and Android, that will extend its services beyond cars. Sirius XM had began the the beta test phase of these apps in late 2014 and had planned to roll them out in the first half of 2015. It appears that the initial roll-out was able to garner significant attention, which paints a pleasing picture for its broader roll-out in the future.

Sirius XM has been testing a new household plan for its subscribers as a viable alternative for per radio pricing. The company’s CEO had said in the past that there are over 80% households in the country with more than one vehicle, which presents an incredible opportunity. This plan is still in its test phase and the company believes that when implemented effectively, it can positively impact subscriber growth as well as ARPU (average revenue per user). Sirius XM is combining its IP and satellite technologies to offer a broader spectrum of content to its users.

Connect Services And Next-Gen Platform

During its Q2 earnings call, Sirius XM stated that its next-gen series, Sirius XM 17 and connected vehicle businesses are developing quickly with a strong initial response. They offer added vehicle safety and security, as well as vehicle health monitoring.  Also, it announced the launch of Nissan Connect Services in 2016, as well as agreements with Jaguar Land Rover and Subaru. With the company looking to increase its scale in connect services, we believe that it stands a better chance of propelling its subscriber growth.

Sirius XM is working with leading automakers to develop a next-gen audio entertainment platform, which will provide customers access to a greater variety of content as well as more control over the content. Its Sirius XM 17, which integrates two-way IP connectivity with satellite broadcasting to provide improved audio experience, has found good acceptance among automakers. In addition, the satellite radio company is planning to offer other features such as customized music mixes, on-demand content and enhanced discoverability. Providing a wide array of small incentives in terms of content and features can help Sirius XM increase its new and used vehicle penetration rate and lower its monthly churn rate.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid CapMore Trefis Research

http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=817666
Notes:
  1. Sirius XM Reports Second Quarter 2015 Results and Increases Guidance, Sirius XM, Jul 28 2015 [] []
  2. Sirius XM Q2 2015 Earnings Transcript, Jul 28 2015 []