Subscriber Growth Continues To Drive Overall Growth For SiriusXM

SiriusXM (NASDAQ: SIRI) sustained its growth momentum when it reported its Q4 earnings on January 30, ending 2018 on a strong note. The company reported a solid 7% increase in revenues to $1.5 billion – a Q4 record. As expected, much of this growth came from Subscriber revenue, driven by nearly 414K new self-pay subscriber additions, ending the year with just under 30 million self-pay users. 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 addition, management’s strong 2019 guidance – which currently excludes growth from Pandora, highlights reasonable sustained demand for its services and should provide for modest growth opportunities in 2019 and beyond – driven by the full integration of Pandora. In addition, we believe SiriusXM’s ever-expanding content line up, coupled with strategic partnerships with PayTollo, Amazon Echo, and multi-year OEM deals should further expand its reach and drive decent long-term growth.Our price estimate for Sirius XM’s stock stands at $6, which is now higher than the market price. We are in the process of updating our model to account for the company’s FY’18 results. We have also created an interactive dashboard which outlines what to expect from SiriusXM in 2019. You can modify the key value drivers to see how they impact the company’s revenues and bottom line. Below we discuss some of the key factors that are likely to impact SIRI’s earnings.

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 just under 5% increase in subscribers and nearly 1% increase in ARPU, partially offset by the negative impact of the new revenue recognition standard. The company reported it added nearly 414K new self-pay subscribers in Q4’18. Further, the solid 2019 subscriber guidance indicates the company is moving in the right direction as it continues to gain traction. In addition, the Pandora acquisition – which is expected to close in the first half of 2019 – should unlock music streaming services for automobiles and further boost its subscriber additions. Moreover, its varied content library, coupled with the robust growth of streaming services and its partnership with Netflix, its marketing partnership with Amazon Echo, and the expansion of its sports channels, should contribute to a growing subscriber base. In addition, the company expects to expand its video services, which should further boost its subscriber base and provides a significant long-term growth opportunity.

SiriusXM’s connected vehicle service has seen consistent growth in FY 2018, driven by stronger than expected new car sales. The company’s new car penetration rate stood at around 75% (down 130 basis points over 2017), due to lower than expected penetration in some automakers with high fleet sales, while used car penetration stood at 40% (up 500 basis points over 2017). We expect another year of solid penetration rates as a result of improved new car sales in the auto industry. Further, the renewals of multi-year OEM deals, coupled with Toyota partnership, the PayTollo acquisition by Automatic – a Sirius XM subsidiary – should not only help SiriusXM enhance its connected vehicle capabilities, but also increase its penetration in the new car space.