Sirius XM's Subscriber Growth Should Continue

New initiatives should keep Sirius' subscriber growth intact

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Oct 30, 2015
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While many stocks in the market have taken a beating recently, Sirius XM (SIRI, Financial) has successfully dodged that trend. The stock is up about 15% year to date as the company has ridden the boom in vehicles sales in the U.S. this year. The extent of the company’s success can be clearly seen in its Q2 earnings report.

In the latest quarter, Sirius XM reported earnings per share of 3 cents, in line with the consensus estimate. The company’s revenue of $1.17 billion was just above the analysts’ estimate of $1.15 billion. The company continued adding more subscribers and expects strong growth going forward. Sirius’ subscriber guidance escalated 50% to 1.8 million net additions from the original guidance of 1.2 million. The company produced adjusted EBIDTA of $415 million, highest amount until now for a single quarter, and converted around 90% of adjusted EBIDTA to free cash flow at $371 million, up 11% from prior year.

In the previous 12 months, the company repurchased more than 633 million shares, resulting in free cash flow per share increased by 25% in the second quarter. The company overall repurchased 1.5 billion shares after the beginning of capital return program.

SXM17, a next generation platform

One of the primary growth drivers for Sirius XM is its financial accomplishment of Sirius XM's flagship satellite radio facility. Many other services of the company, such as Sirius XM 2.0, online streaming and thrust into telematics, have moved the company forward but are not enough to move the needle.

The company recently provided details about the SXM17, a next generation platform, and a huge potential needle mover. SXM17 is a next-gen platform that combines satellite broadcasts with smartphones or mobile Wi-Fi to deliver improved programming and services.

Although the company hasn’t thrown much light on SXM17, it has the potential to be a game-changer in the long-run.

Sirius XM extends satellite radio agreement with NFL

Sirius XM recently announced a six-year extension of its satellite broadcasting and marketing contract with the National Football League. According to the deal, the satellite radio provider will broadcast every pro football game as well as the Sirius XM National Football League Radio channel through 2022.

The company also introduced an amazing feature through which NFL Radio programs are now accessible on demand, offering subscribers access to the back collection of episodes and interviews. This should further help Sirius add more subscribers. No wonder the company raised its guidance substantially.

With the automobile market still growing, I expect Siri to continue growing customers in the foreseeable future, making it an ideal pick in the present market.

Conclusion

Sirius XM’s subscriber count has increased significantly and considering the positives, I expect this to continue. The company may be trading at a premium valuation, but it has strong growth prospects that justify its valuation. In the present market, Sirius XM is one of the best speculative investment opportunities that I can think off.