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Can Sirius XM Improve Its Performance in the Long Run?

August 21, 2014 | About:
rusticnomad

rusticnomad

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Satellite radio provider Sirius XM (SIRI) released mixed results. The company’s performance was quite impressive as it posted good numbers but at the same time Sirius failed to meet expectations on other key points. With good improvement in top line, Sirius failed to impress by its earnings. The earnings lagged due to the aggressive share repurchase initiatives by the company to improve the share price.

Further, despite these weaknesses, Sirius is seeing growth in its subscriber base adding more subscribers to its camp; also Sirius is making good moves in innovating its radio service. On the back of these good moves Sirius can overcome the weakness it is facing in no time. Let us take a closer look and find out whether Sirius is able to stand by its commitments and deliver better results in future.

Looking beyond the financials

Moving on to the financials, Sirius’ radio business came up rolling with its quarterly revenue growing by 11%. It justified its best in class operational efficiency by posting double digit growth in the top line for ninth consecutive quarter. Sirius saw great traction in the market for its service. This led the company to see handsome growth in its adjusted EBITDA margin by 33.5% which improved 400 points from 29.1% in the last year’s first quarter.

However, Sirius failed to meet consensus estimates on the earnings front clocking a bad 24% decline as a result of major share repurchase program. However, it didn’t affect the investors much as its share rose by $0.03 to $3.14 in the morning trading session.

Sirius is one the most known names in the market of satellite radio. The reason for the decline in the earnings as a result of a share repurchase program can be a strategic move by the company to improve the stock price. That is why even a 24% decline in the earnings couldn’t impact investors' interest in the stock much as the investors might be speculative about the stock and are still bullish about the stock movement in the near future. If we omit this decline in the earnings, there are many strong points in the house which strengthen the long-term prospects of the company and indicates that Sirius can be a good long-term holding in the future. The company is seeing handsome growth in the subscriber base. Its net subscribers grew by 267,000 in the first quarter to an all-time high of 25.8 million. Self-pay subscribers grew by 173,000 in the first quarter also to an all-time high of $21.3 million, up 7% year-over-year. Seeing this improvement in the subscriber base Sirius is optimistic of achieving its subscriber growth target of 1.25 million and further more.

Moving forward, Sirius has also resumed its capital return program. This is a strategic move by the company as this will surely help the company drive this and faster growth in free cash flow per diluted share. The share repurchase programs by the company have hurt its earnings in some or the other way. However, Sirius is looking ahead to complete the final tranche of share repurchase program with Liberty Media. Under this, Liberty Media Corp, which owns 53 percent of Sirius, canceled an offer to buy the rest of the satellite radio provider in March. This can be a bad news for Sirius as the company had great expectations from this agreement with Liberty Media.

Improving penetration

The company saw good penetration rate in the first quarter which was by a good 70%. Also, based on the penetration work forecast and this year’s expected auto sales of around $16.2 million, Sirius is seeing good opportunities in the auto motive market projecting around 11 million trials in the new car market this year. in addition to this, the second owner market also lays great opportunities in front of Sirius. Over 3000 of these dealers are also enrolled in Sirius’ service line initiative giving it best opportunities to offer trials to dealers’ customers who are getting their vehicle serviced at participating locations.

Sirius' other move which is expected to benefit the company in the future is the launch of its next generation Technology 2.0 satellite radios in new vehicles. This will certainly allow its OEMs to cost down their implementation cost for radios. Sirius is laser focused on serving its OEM customers in the best possible way such as by deployment of its connected business vehicles. To strengthen this, the company has purchased Agero resource from East Europe. This move has really rolled out for Sirius as it is seeing good traction. Also, with the connected car arriving, Sirius is turning the entire focus of the organization in capturing this opportunity and monetizing it. Also, it is making impressive investments to improve its core audio services.

Conclusion

Looking at the ratios, with trailing P/E of 61.79 the company looks expensive however; its forward P/E of 28.83 indicates that the earnings of the company are going to reach new highs in future. Also Sirius is moving well with an impressive CAGR of 16.65%. Its strengthening of its radio offering is also impressive. Looking at such strong prospects Sirius appears to be a good pick as of now. But the high valuation might trouble some investors. But as the prospects are strong the investors should mind paying higher premium for the stock like Sirius.


Rating: 3.0/5 (2 votes)

Voters:

Comments

biff1
Biff1 - 3 months ago

It's moving up and is not overvalued at all. Look for more upward movement, as stock buybacks continue, as well as used car sales increase.

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