SIRIUS XM Remains Neutral - Analyst Blog


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We reaffirm our long-term Neutral recommendation on SIRIUS XM Radio Inc. ( SIRI ). The company reported strong financial results for the second quarter of 2013. This solid performance was primarily attributed to record-high revenues, adjusted EBITDA, free cash flow and net addition of subscribers. SIRIUS XM currently has a Zacks Rank #3 (Hold).

Why Kept at Neutral?

SIRIUS XM is largely dependent on the growth of the U.S. auto industry. The company holds an estimated 70% market share of the new cars sold. Therefore, even a minor fluctuation in auto sales may significantly affect the company's overall financials. In order to counter this problem, management has decided to enter into the telematics business.

The company has decided to acquire the connected vehicle services unit of Agero Inc. Agero's connected vehicle unit provides several telematics services, including driver alerts, vehicle maintenance information and location based content for traffic information, nearby gas stations or restaurants information, along with navigation help and voice texting services. The company has strong telematics partnership with almost all major car manufacturers.

The proposed acquisition of Agero's telematics business will enable SIRIUS XM to offer both satellite services and wireless services. In Jul 2013, the company entered into a partnership with AT&T Inc. ( T ) to offer emergency support, stolen vehicle tracking and roadside assistance to all connected cars in North America manufactured by Nissan Motors.

On the other hand, SIRIUS XM forecasted that the growth rate of its net subscriber addition will be reduced in 2013. The sale and lease of vehicles with satellite radios is the most important source of subscribers for the company. Given the fluctuations in the global economy and SIRIUS XM's extensive dependence on the auto industry, we believe that the company's financial results may fluctuate in the near term.  

Pandora Media Inc. ( P ) is a major competitor for SIRIUS XM. Pandora has over 80 million registered users in the U.S. and provides a unique algorithm that increases the intrinsic quality of the music. Furthermore, the upcoming iTunes online radio service of Apple Inc. ( AAPL ) has emerged as a major threat for SIRIUS XM.

APPLE INC (AAPL): Free Stock Analysis Report

PANDORA MEDIA (P): Free Stock Analysis Report

SIRIUS XM RADIO (SIRI): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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