On Dec 23, we maintained our Neutral recommendation on
SIRIUS XM Radio Inc.
), as the company's bottom and top line surpassed the Zacks
Consensus Estimates but the top line missed the same in the
recently concluded quarter.
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Why the Reiteration?
SIRIUS XM is set to diversify its business model from a pure
radio entertainment provider to a web-based safety and navigation
information provider for cars. The company has decided to acquire
the connected vehicle services unit of Agero Inc. The acquisition
of the telematics business of Agero will enable SIRIUS XM to
offer both satellite services and wireless services.
Furthermore, demand for light utility vehicles in the third
quarter remains strong in the U.S. Penetration rate for new car
sales in the reported quarter was 69% for SIRIUS XM, which is two
basis points above the prior-year quarter. SIRIUS XM currently
offers satellite-radio broadcasting services to nearly 24% of the
cars in the U.S. The company extended its contract with Honda
till 2020, which we believe will further drive the satellite
On the down side, SIRIUS XM is facing significant competition
from several fronts. Pioneer System, a leading car information
system manufacturer, unveiled a new car stereo called
"AVIC-X920BT" that supports Internet radio. This product can
detect Pandora Internet radio settings from iPhones or iPods, and
can be translated into convenient access to create customized
music stations for individual users while driving.
Even, Pandora has over 80 million registered users in the U.S.
and provides a unique algorithm that increases the intrinsic
quality of the music. In addition to iPhone, Pandora has also
developed streaming services for BlackBerry and Android-based
smartphones. Furthermore, the upcoming iTunes online radio
service of Apple has become major threats for SIRIUS XM.
SIRIUS XM currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other TV/Radio broadcasters that also warrant a look include
Salem Communications Corp.
Gray Television Inc.
Discovery Communications, Inc.
). All three stocks currently carry a Zacks Rank #2 (Buy).