We upgrade our recommendation on
SIRIUS XM Radio Inc.
) to Neutral ahead of its first-quarter 2013 financial results,
which will be released on Apr 30, before the opening bell.
Why the Upgrade?
We expect the company's positive momentum with respect to
revenue, margins and free cash flow to continue in the near-term.
SIRIUS XM is largely dependent on the growth of the U.S. auto
industry and currently holds an estimated 70% market share of the
new cars sold in the face of growing competition from
Pandora Media Inc.
) and Spotify.
In order to retain its subscriber base, the company recently
introduced an innovative personalized interactive Internet radio
service called "MySXM". SIRIUS XM currently has a Zacks Rank #3
Balanced View on SIRIUS XM
Continuous rise in auto sales led to a record subscriber
growth for the company in 2012. However, management has hinted
that auto sales may rise at a slower rate in 2013. According to
the new deal with SIRIUS XM's major customer,
General Motors Co.
), the auto giant has stopped the payment of promotional money to
the company. We believe that this may force SIRIUS XM to lose
some paid promotional customers.
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.
On the other hand, SIRIUS XM has a very strong business
relationship with the original equipment manufacturers. The
company owns an extensive satellite network, covering the whole
of U.S. that provides audio contents through more than 170
In Jan 2012, SIRIUS XM raised the prices of its services.
Management is hopeful that its churn rate will remain more or
less the same as the previous year despite the hike in price. In
the fourth quarter of 2012, average self-pay monthly churn rate
was 1.8% compared with 1.9% in the prior-year quarter.
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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