Sirius XM Earnings: Still Getting The New Car Push

Sirius XM‘s (NASDAQ:SIRI) recently reported Q4 2015 results were inline with the market expectations, and they showed a lot of promise. While increased investments in key growth areas constrained the company’s bottom line, the satellite radio provider did very well on the topline front with further inroads into the new car market. Sirius XM’s net subscriber additions for the year, at 2.3 million, were the strongest since 2007, even though the company’s runaway subscriber growth period is arguably over. Surprisingly, new vehicle penetration rate reached 78% during the fourth quarter, while it has expected to have saturated around 72%. Sirius XM’s connected services are drawing significant subscriber attention, which seems to be one of the reason behind the jump in its new vehicle penetration rate. As the company continues to expand this service, it can lead to a consistent rise in subscriber base going forward with expansion into the used car market playing a pivotal role.

Sirius XM’s revenues increased 10% to $1.2 billion for the fourth quarter, meeting estimates of analysts polled by Thomson Reuters. However, due to increased expenses on account of higher investments, profits fell marginally to $134.6 million from $143.1 million in the year ago period. Eearnings remained flat at 3 cents per share, inline with the consensus estimate. The company’s net revenues for the year were at $4.4 billion, $200 million ahead of its earlier guidance. For the current year 2016, Sirius XM reiterated its revenue guidance of $4.9 billion. ^[1]

Our current price estimate for the company stands at $3.96, which is about 5% above 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

New Car Market Domain Provides Renewed Growth

During 2015, Sirius XM added a total of 2.3 million new subscribers, which was the most in a year since 2007. What’s worth noting is that during the years of subscriber growth slowdown, many believed that the satellite radio company is nearing saturation in terms of its subscriber base. For the next wave of subscriber growth, Sirius XM was banking on the used car market, but the recent results show that the new car market still has a lot to offer. Sirius XM’s penetration rate in new vehicle sales increased seven percentage points during the year to 74.5%, with fourth quarter being the best at 78%. Not many expected penetration rate to go above 72% due to the availability of free content over terrestrial and Internet radio services. However, Sirius XM’s diverse and unique content along with its connected services continued to draw a lot of user attention. The satellite radio company expects to sustain its new vehicle penetration rate in mid-70s for several years to come. ^[2]

Connected Services Should Keep Subscriptions Running

In addition to offering listening content through satellite radio sets factory-installed in cars, Sirius XM offers connected services to car manufactures through its subsidiary – Sirius XM Connected Vehicle Services Inc. The company provides an array of features to enhance safety, security and convenience. These include remote and assist services, automatic crash notifications, easy access to maps, weather, restaurants and points of interests, scheduling service appointments, repairs etc. The satellite radio company has been in this domain for a while and it recently signed a deal with American Honda to provide next-gen connected services to Acure and Honda vehicles. Currently, Sirius XM provides connected services Acura, BMW, Hyundai, Honda, Infiniti, Jaguar, Land Rover, Lexus, Nissan, Subaru and Toyota. With new car sales increasing steadily, connected services should provide buyers an incentive to subscribe to Sirius XM services, which should keep its growth running. Coupled with the huge opportunity in the used car domain, this paints a pleasing picture for Sirius XM’s future. ^[3]

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1. Sirius XM Reports Fourth Quarter And Full Year 2015 Results, Sirius XM, Feb 02 2015 [↩]
2. Sirius XM Q4 fiscal 2015 earnings transcript, Feb 2 2016 [↩]
3. Sirius XM To Expand Net Generation Connected Vehicle Services For American Honda, Sirius XM, Feb 2 2016 [↩]