We downgrade our recommendation on
SIRIUS XM Radio Inc.
) to Underperform. The company reported mixed financial results
for the fourth quarter of 2012. While net earnings barely met the
Zacks Consensus Estimate, revenue fell below the same.
Why the Downgrade?
SIRIUS XM forecasted that its growth rate of net subscriber
addition will be reduced in 2013. The company added more than
1.66 million Self-Pay subscribers in 2012. However, it is not
expected to add more than 1.6 million Self-Pay subscribers in
2013. Similarly, SIRIUS XM generated more than 2 million net new
subscribers in 2012, whereas the company is likely to add a mere
1.4 million net new subscribers in 2013.
Meanwhile, the stock price of SIRIUS XM has soared by more
than 73% in the last year and is currently trading at the
high-end of its 52-week price range. We believe that the
company's growth rate will slow down in 2013 and consequently its
valuation metrics should converge to the S&P 500. SIRIUS XM
currently has a Zacks Rank #5 (Strong Sell).
SIRIUS XM is largely dependent on the growth of the U.S. auto
industry and at present holds an estimated 70% market share of
the new cars sold in the face of growing competition from
Pandora Media Inc.
) and Spotify. Therefore, even a minor fluctuation of autosales
may significantly affect the company's overall financials.
Further, SIRIUS XM lost the legal battle to counter the
takeover bid from
Liberty Media Corp.
), which currently controlsmore than 50% of the company. We do
not know whether there will be any change in management policy
after the takeover.
We believe that the new deal with the company's major
General Motors Co.
), may force SIRIUS XM to lose some paid promotional customers as
according to the new arrangement, the auto giant has stopped the
payment of promotional money to the company. In the reported
quarter, the growth rate of net subscriber addition dropped 1.5%
year over year.
GENERAL MOTORS (GM): Free Stock Analysis
LIBERTY MEDIA-A (LMCA): Free Stock Analysis
PANDORA MEDIA (P): Free Stock Analysis Report
SIRIUS XM RADIO (SIRI): Free Stock Analysis
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