Sirius XM (SIRI, Financial) recently announced second quarter 2014 revenue of $1.035 billion, an increase of 10% from $940 million during the second quarter 2013. However, analysts had expected $1.01 billion, according to Zacks. The company also expanded its 2014 revenue outlook to $4.1 billion from its earlier prediction of greater than $4 billion.
Earnings Analysis
Sirius XM reported 60% increase in the second quarter of 2014 adjusted net income to $131 million compared to $82 million during the same quarter last year. Sirius XM also stated its adjusted EBITDA 2014 guidance of nearly $1.425 billion.
Outlook
Sirius XM illustrated 42% increase in free cash flow to $335 million, which is believed to be the peak level never delivered by the company in one quarter. The company also lowered its share count by successfully executing its stock repurchase program which led to a significant 47% increase in free cash flow on a per share basis. For the entire year, it currently expects nearly $1.1 billion of free cash flow.
Sirius XM generated 475,000 net subscriber additions that include self-paying net additions of 380,000. Hence, the company’s net subscriber base for the quarter rose 5 percent from previous year and reached 26.3 million and its self-pay subscriber base touched 21.6 million.
The new car business of Sirius XM surely benefitted from the excellent auto sales recorded during the second quarter which increased 7% to 16.5 million. The vehicle sales for the entire year till date rose nearly 4% against last year and in line with the company’s expectations.
Sirius XM has developed stronger relationships with OEMs and its new car penetration for the year reached 70% leading to a rise in the lease mix and considerable decline in the average credit scores.
The used car initiatives of Sirius XM continues to deliver solid results and signify huge growth opportunity for it in the coming years. At present, Sirius XM has more than 13,000 dealers bringing sales data to it in the second owner market. Further, more than 4,000 of those dealers have also subscribed to its service lane effort providing it with an alternate distribution channel to approach owners of Sirius XM driven vehicles.
The second owner business conversion rates are still running in the low 30s and this segment is expected to contribute nearly 2 million subscriber additions to its self-pay base for the year with increasing numbers in the coming years.
The second owner market is increasingly becoming a key to the growth story of Sirius XM. Year-to-date, nearly 27% of its self-pay additions have been received from the second owner market, rise of about 23% from previous year and 19% in 2012.
Sirius XM’s accumulative installs crossed the 70 million mark in June. And post removing scrappage and unsold vehicles, its enabled vehicle numbers on the road approximates 65 million now. This signifies that Sirius XM Radios are presently installed in 27% of the cars on the road now and this is believed to expand toward its fresh car penetration rate of 70% with time.
Sirius XM is constantly working with the OEMs on their long-term plans and expects that the 65 million enabled vehicles at present to become nearly 120 million in five years and approximately 150 million in the next 10 years.
Making smart moves
Sirius XM’s connected vehicle business is at the center of its long-term growth strategy which enhances its significance to OEMs and enables it to offer services such as security, safety and suitable features to the existing users as its audio business.
Sirius XM has enhanced the reach of its commercial-free music programming by launching three innovative music channels in the sections of dance, country, and pop.
Sirius XM also introduced the YouTube 15 during the quarter which is a unique countdown showing trending data received straight from YouTube to display the latest music videos present online. In June, the company introduced the TODAY Show Radio, with live audio feeds including replays during the day.
Sirius XM entered into an agreement with Joel Osteen to bring him online and close to millions of followers through the channel.
The satellite radio major also released many innovative series during the quarter, including Randi Zuckerberg’s Dot Complicated, Funny show, Sexy and Jenny McCarthy’s Dirty.
Moreover, the sports team of Sirius XM broadcasted unmatched live coverage for this year’s NFL draft, The Masters and its highly widespread coverage of Major League Baseball.
Sirius XM has built a solid presence in Nashville and is now believed to be a leader in country music. It is scheduling similar investments in Los Angeles for enhancing its drive time content for West Coast listeners.
TheStreet Ratings team rates Sirius XM Holdings Inc. as a Buy with a ratings score of B- owing to several positives that are believed to outweigh any of the company’s weaknesses. The company's strengths are viewed in several areas like its solid revenue growth, healthy cash flow from operations and rising profit margins. The company’s only weakness lies in dull performance of the stock.
Conclusion
Sirius XM is making impressive moves in order to improve its standing in the market. As a result, it will be a good idea to remain invested in the stock for the long run.
