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SIRIUS XM Sees Strong Subscriber Growth, Competition Rife

Zacks Equity Research
Updated

On Dec 28, we issued an updated research report on SIRIUS XM Holdings Inc. SIRI. Management expects full-year 2015 revenues of around $4.53 billion while adjusted EBITDA is projected at roughly $1.65 billion. Also, the company estimates an addition of two million subscribers in 2015.

SIRIUS XM recorded a negative earnings surprise in one quarter last year, with the average being a negative 8.33%. The company reported third-quarter 2015 financial numbers wherein the bottom line was on par with the Zacks Consensus Estimate while the top line surpassed the same.

SIRIUS XM posted record EBITDA in the third quarter of 2015. The company added 525,000 subscribers in the quarter which took the total subscriber tally to 28,960,000 as of Sep 30, 2015, up 8.3% year over year. Recently, SIRIUS XM signed a 12-year licensing deal with popular TV personality Howard Stern’s production firm. We believe that the contract will boost the company's subscriber base further.

SIRIUS XM has strong telematics partnerships with almost all major car manufacturers, which include the likes of Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota.

On the downside, a highly leveraged balance sheet coupled with stiff competition from Internet music service providers like Apple Inc.’s AAPL iTunes online radio service, will continue to raise concern. Moreover, SIRIUS XM is highly dependent on the future of the U.S. auto industry, which is quite volatile. Therefore, even a minor fluctuation in auto sales may significantly affect the company’s financials.

Moreover, in the third quarter of 2015, customer conversion rate for the company stood at 41%, flat year over year, which is also a major drag.

SIRIUS XM currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space are The E. W. Scripps Company SSP and Sinclair Broadcast Group, Inc. SBGI, both of which carry a Zacks Rank #2 (Buy).

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