Subscriber Growth To Drive Sirius XM’s 2018 Results

+26.91%
Upside
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Trefis
SIRI: Sirius XM logo
SIRI
Sirius XM

SiriusXM’s (NASDAQ: SIRI) revenue has gradually increased over the years, primarily due to growth in its subscriber base and average revenue per user (ARPU). Subscriber revenue accounts for close to 82% of the company’s overall revenues. Revenue from this segment rose to $1.12 billion (+4% y-o-y) in Q1 2018, primarily driven by an increase in the number of subscribers and ARPU. The company reported record subscriber growth, topping its Q1’18 expectations. The company expects to add nearly 1 million self-pay subscribers in 2018. However, given the ease with which SiriusXM exceeded its earlier Q1 targets, we expect the company to manage to beat its 2018 estimates, as long as the auto market and economy remain relatively steady. Further, with renewals of multi-year OEM deals and attractive offerings, the company expects greater adoption of its latest 360L product. In addition, the company is also experimenting with the launch of video services, which should provide a significant long-term growth opportunity.

We have created an interactive dashboard analysis to estimate SIRI’s valuation based on its expected results for 2018. You can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.

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We have a $6 price estimate for SIRI’s stock, which is around 10% below the market price, based on revenue projections of $5.7 billion for FY 2018, net income of $1.1 billion for FY 2018, and a P/E multiple of 26x, which is lower than 2017 trading levels.

SiriusXM Continues To Grow Steadily In The New And Used Car Market

The rebound in the auto industry sparked stronger-than-expected new car sales in Q1’18, and this helped Sirius’ penetration in the new and used car market. SiriusXM steadily increased its penetration in the new car market and reported it to be around 76%, while used car penetration stood at 37%. The continued growth in market penetration should help the company to overcome the slowdown in new car sales. In addition, SiriusXM has been concentrating on increasing its penetration rate in the used car market as well.

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