SiriusXM Q1’17 Earnings Preview: Subscription Growth Can Slow Down, But Bottom Line To Remain Strong

by Trefis Team
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Sirius XM Radio
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The satellite radio provider, SiriusXM (NASDAQ:SIRI), will report its Q1’17 earnings on April 27th. Sirius XM’s performance in 2016 exceeded both the revenue and earnings estimates by the analysts, owing to the addition of 1.7 million net new subscribers, and improvement in monetization per user. This was complimented by the new content that it kept on adding to its arsenal, and the renewal of contracts with some of the largest car manufacturers like GM.

Due to the above factors, SiriusXM’s stock surged by over 15% in Q1’17, though the subscriber growth during this period may have slowed down due to low car sales in the quarter. Also, the company is more cost efficient with lower content acquisition and operating costs, which was reflected in margin growth for FY’16. For the same reasons, analysts are estimating higher EPS for Q1 as compared to the same period last year.

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Slow Subscriber Growth To Be Offset By High Penetration Rate To Some Extent

According to Motor Intelligence, new car sales in the US  have dropped by 1.5% y-o-y to 4.03 million (YTD). As Sirius XM’s new subscriptions are highly dependent on the car sales, it is likely that the subscription growth may have slowed down. This could be offset to some extent by the higher penetration rate, which stood at 75% in 2016 as compared to 74% a year before. In addition, the company has been stressing on capturing the used car market to continue the growth in the subscriber base. Overall, the company has guided for 1.3 million new subscriber additions in 2017, which is lower than the 1.7 million in 2016.

‘Connected Cars’ In Focus

Sirius XM is aiming to tap the fast growing connected cars market. The connected car refers to the vehicles equipped with the internet through which the driver can stay connected with other devices inside and outside the car. According to a report by Markets & Markets, its market is expected to reach $46.69 billion by 2020, growing at over 10% CAGR.  It will be interesting to note SiriusXM’s progress with this new technology along with its R&D investments in satellites. This new avenue teamed up with the quality of content are likely to boost customer stickiness if there is saturation in the growth of new subscriber additions, in the event of tough competition from Apple CarPlay and Android Auto.

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