Key Takeaways From Sirius XM’s Q3

SiriusXM (NASDAQ: SIRI) reported its  Q3 earnings on October 24, beating consensus estimates. The company reported a solid 6% increase in revenues to just under $1.47 billion – a Q3 record. Much of the revenue growth came from subscriber revenue, as a result of nearly 300K new self-pay subscriber additions, ending Q3 with roughly 28.5 million self-pay customers. Subscriber revenue was up slightly over 2% year-on-year to over $1.2 billion, forming nearly 80% of the company’s net revenues. In line with our expectations, management raised its full year subscriber guidance based on strong performance in first nine months of 2018. We expect further improvement in its subscriber base driven by its acquisition of PayTollo, Amazon Echo deal, and multi-year OEM deals. Moreover, we expect sustained penetration in both the new and used car markets to drive the company’s full year results. Additionally, the acquisition of Pandora, which is expected to close in the first half of FY 2019, would give the satellite radio company a greater presence in the streaming market and should accelerate Pandora’s distribution to vehicles and unlock music streaming services for automobiles – given SiriusXM’s alliance with several automakers. Consequently, this deal holds great long term potential for both companies. Below, we provide a brief overview of the company’s results and what lies ahead.

We have an updated $6 price estimate for SiriusXM‘s stock, which is significantly ahead of the current market price. We have summarized our expectations for the company’s 2018 results on our interactive SiriusXM’s full year results dashboard. You can modify the average revenue per user (ARPU), Daily Weighted Average Subscribers, and other forecasts to see how changes would impact the company’s results.

Robust Subscriber Growth To Drive Full Year Results

Subscriber revenue contributes nearly 80% of Sirius’s overall revenue, and the revenue stream has seen consistent growth. Subscriber revenue growth was primarily driven by a 5% increase in subscribers and nearly 1% increase in ARPU, slightly offset by the negative impact of the new revenue recognition standard. The company reported it added nearly 300K new self-pay subscribers in Q3’18. Further, the upgraded subscriber guidance indicates the company is moving in the right direction as it continues to gain traction. SiriusXM’s offerings of differentiated content, coupled with the robust growth of streaming services and its partnership with Netflix, its marketing partnership with Amazon Echo, and the launch of its new college sports channel 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.

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

Strong new car sales in the auto industry sparked stronger-than-expected figures in the first half of 2018, which helped Sirius’ penetration in the new and used car market. SiriusXM steadily increased its penetration in the new car market, reporting it to be around 80%, while used car penetration stood at 40%. However, a slowdown in the auto industry should dampen its penetration rate. Nevertheless, the renewals of multi-year OEM deals, coupled with the rollout of its 360L product – which combines satellite radio with a streaming experience, and the acquisition of PayTollo by Automatic – a Sirius XM subsidiary – should help SiriusXM enhance its connected vehicle capability and increase its penetration in the new car space.