We downgrade our recommendation on
SIRIUS XM Radio Inc.
) to Neutral based on its current valuation, which has soared
nearly 70% in the last year. Meanwhile, the company continues with
its strong performance primarily due to impressive management
execution on the back of rising auto industry sales. Recently,
SIRIUS XM declared that it achieved a record-high third quarter net
subscribers' addition. Total subscribers base at the end of the
third-quarter 2012 was 23,365,383, up 9.5% year over year.
Despite price rise of its services, SIRIUS XM maintains its
churn rate. Solid conversion rate and an effective marketing
strategy helped the company to achieve this milestone. The company
commands an estimated 70% market share of new cars sold in the U.S.
in the face of growing competition from
Pandora Media Inc.
) and Spotify. Beside its healthy subscription-based business, the
company is slowly growing its advertising business. However, we
believe all these positives are already reflected in the current
valuation of the company.
Meanwhile, SIRIUS XM is currently fighting a hostile takeover
Liberty Media Corp.
), its most powerful creditor. Liberty Media has filed a new
application to the U.S. Federal Communications Commission, in which
the company stated its intention to acquire more than 50% of SIRIUS
XM, so that it can take full control of the Board of SIRIUS XM.
Liberty Media withdrew its previous application with Federal
Communications Commission (FCC) to de facto control SIRIUS XM.
Instead, the company is now willing to get a full control. Liberty
Media at present has 49.6% stake in SIRIUS XM's total outstanding
LIBERTY MDA-LC (LMCA): Free Stock Analysis
PANDORA MEDIA (P): Free Stock Analysis Report
SIRIUS XM RADIO (SIRI): Free Stock Analysis
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