How Will SiriusXM’s Subscriber Revenue Grow In The Next Two Years?

by Trefis Team
Sirius XM Radio
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SiriusXM (NASDAQ: SIRI) has performed decently over the past couple of years. The company’s revenue grew by over 9% annually and its stock price increased by nearly 32% between 2015-2017.  We attribute this growth primarily to revenues from Subscriber segment. This revenue stream has  gradually increased between 2015-2017, 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 and grew just over 8% between 2015-2017. Below we take a look at what to expect from SiriusXM’s standalone Subscriber segment in the next two years, independent of the recently announced Pandora acquisition.

Based on recent market trends and the improved near-term outlook provided by the company’s management, we forecast SiriusXM to report 6-7% annual revenue growth in the next two years, from $5.4 billion in FY 2017 to about $6 billion in FY 2019. Of the estimated $659 million incremental revenues, we estimate that the Subscriber segment will contribute just over 72%, or $477 million. We have summarized our expectations on our interactive dashboard on SiriusXM’s Subscriber revenue contribution through FY’18 and FY’19. If you disagree with our forecasts, you can change the key drivers for Subscriber segment to gauge how changes will impact its expected revenue. Below we take a look at the key drivers for this revenue stream.

Robust Subscriber Growth And Sustained Penetration In New And Used Car Market To Drive Results In Near Term

The Subscriber segment generates revenues from subscription, activation, and other fees. This segment has seen consistent improvement of late, with revenues witnessing around 9% annual growth between 2015-2017, reaching just under $4.5 billion in 2017. Subscriber revenue growth was primarily driven by a continued increase in the daily weighted average number of subscribers and ARPU. Further, the notable highlight of SiriusXM’s Q2’18 results were the upgraded subscriber guidance, indicating the company is moving in the right direction as it continues to gain traction. Additionally, company’s offerings of differentiated content, coupled with the robust growth of streaming services and its partnership with Netflix, should boost its subscriber base. In addition, the company is also experimenting with the launch of video services, which should further boost its subscriber base and provides a significant long-term growth opportunity.

Strong new and used car sales helped SiriusXM improve its penetration in the new and used car market. Consequently, this helped drive self-pay subscriber growth. Further, we believe renewals of multi-year OEM deals and attractive offerings – greater adoption of its latest 360L product, coupled with sustained penetration in both the new and used car markets should drive the company’s near term results. As a result, we estimate the segment’s revenue to grow just over 5% annually going forward.

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