Satellite radio service provider
) reported impressive revenue and subscriber growth in its Q4 2012
earnings results. During the year, the company added over 2 million
net subscribers and grew its revenues by close to 13%. Growing U.S.
vehicles sales, an improvement in subscriber retention, Sirius XM's
sustained new vehicle conversion rate and push into the used-car
segment are driving these subscriber additions. Even though the
royalty rates are set to rise each year, Sirius XM will continue to
grow its cash flow on the back of its robust subscription based
business model. Adding unique programming, making its
internet-based service more appealing and greater push in used car
segment are going to be some of the focus areas for the company. In
2013, Sirius XM expects more than $3.7 billion in revenues and
roughly 1.4 million net subscriber additions.
See our complete analysis for Sirius XM
Performance In Auto Segment
Sirius XM's growth has primarily come from automotive
subscribers, and this largely depends on the broader trend in
vehicle sales in the U.S. The automotive market growth is being
helped by higher availability of financing and lease deals. The
overall auto sales in the U.S. stood at around 14.5 million in 2012
and is expected to cross 15 million in 2012.
While automotive market growth has helped, Sirius XM has also
done well because of its sustained new vehicle conversion rate.
This figure stood at around 44% for the fourth quarter, and is
likely to remain within 44-46% range for the next few years. The
company has been able to strike deals with a host of auto
manufacturers and as a result, close to 50 million vehicles in the
U.S. are currently equipped with satellite radio. Management
expects this figure to double over the course of next 5 years.
The new car penetration rate (number of new vehicles equipped
with satellite radio) remains at around 67-68%. As these new
vehicles enter the used-car market slowly, Sirius XM will have a
greater opportunity to grab subscribers. The company added more
than 1 million gross subscribers from used-car channel, and expects
to increase this figure to 1.5 million in 2013.
Internet & Personalization
Sirius XM is making some serious effort to branch out to
internet medium and promote its online streaming app. This will
help it broaden its subscriber base and defend itself against
internet-based competitors that are expanding into in-vehicle
systems. With its new service called MySXM, Sirius XM intends to
give its subscribers a personalized radio experience, similar to
The company believes that satellite and internet radio are
likely to coexist in vehicle entertainment systems for a long time
to come. While having a streaming app and personalization feature
will draw more subscribers and help in keeping the churn low,
Sirius XM will have an added advantage in terms of its content over
Pandora. Besides offering music, the company also offers talk
shows, sports programming and other content that is not available
on free services. Being the only satellite radio provider in the
U.S. and having established itself in vehicles, Sirius XM can look
forward to another strong year.
We are currently in the process of updating our price estimate
for Sirius XM in the light of recently reported results, and will
have an update ready soon.
Our price estimate for Sirius XM stands $2.34
, implying a discount of about 25% to the market price.
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