We reaffirm our long-term Neutral recommendation on
SIRIUS XM Radio Inc.
). 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
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
) 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.
) 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
) has emerged as a major threat for SIRIUS XM.
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PANDORA MEDIA (P): Free Stock Analysis Report
SIRIUS XM RADIO (SIRI): Free Stock Analysis
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