It is now 2013 and with a new year comes change. One company that has embodied this concept is Sirius XM Radio (SIRI). Sirius XM has recently reached a new 4 year trading high, when on Thursday (1/10/13) the stock soared to $3.19. Sirius XM's stock has enjoyed a 9.3% increase since the start of 2013. This bullish run has easily beat the market. With a new year comes new investment opportunities, lets take a look at what Sirius is all about and why you should "seriously" consider adding this stock to your portfolio.
Back in January 2012, Sirius XM had approximately 21.9 million subscribers. At this time it was projected that Sirius XM would add an additional 1.3 million net subscribers throughout the year. It was also during this time that Sirius XM, for the first time increased its based monthly subscription rate by approximately 12%. Many analysts and investors were unsure how the current and future subscribers would react to this price increase. Some believed the increase would put a damper on attracting new subscribers. Others worried that it might be a catalyst for current subscribers to leave. While a minority felt it would have no impact because the content provided was still worth the price of the subscription. Fast forward a year and it turns out all those fears of alienating subscribers never materialized. Sirius XM recently reported that during 2012 it beat those earlier projections and added 2 million net subscribers. Bringing the total amount of subscribers to 23.9 million by the end of 2012. By beating expectations during a period of increased rates, Sirius XM showed the core strength of its product. Sirius XM's product speaks for its self. However, if you are weary, just ask any of the current 23.9 million subscribers their opinion. With the line-up of talent that Sirius XM has, it is not surprising that its stock enjoyed a gain of 60% during 2012.
The question we are now faced with is: Will this upward trend continue? In order to answer this question we need to take a look at business growth, specifically the base of Sirius XM, its subscriber amount.
Sirius XM essentially operates on a subscription based business model. This means a customer must pay a subscription price to have access to the product/service for a set period of time. Each subscription that is added has a direct effect on the businesses revenue. This type of business model can be a benefit because it assures a constant and predictable revenue stream. Additionally, this type of model greatly reduces risks and uncertainty that await in the future. Most of the costs that Sirius XM faces are fixed. These fixed costs along with a predictable revenue stream make it easier for Sirius XM to give reliable guidance for the coming year.
Sirius XM just recently Wednesday (1/09/13) gave guidance for the year ahead. A few of the highlights are:
- Revenue will be more than $3.7 billion
- Adjusted EBITDA should surpass $1.1 billion.
- Free cash flow will be near $900 million.
- Sirius XM is targeting 1.4 million net subscriber additions this year.
I would like to specifically look at the target increase of 1.4 million net subscribers for the year. Although the CEO is no longer Mel Karmazin, interim CEO Jim Meyer's most recent guidance will likely reflect Sirius XM's tradition of being conservative. The target of 1.4 million more subscribers, is similar to the guidance that was given back in 2012. It would not be surprising if Sirius XM once again was able to beat those expectations. Lets take a quick look at some new avenues Sirius XM will be using in 2013 to attract new subscribers.
On Tuesday (1/08/13) Sirius XM and Toyota (TM) announced a deal that will make Sirius XM available across Toyota's entire 2013 lineup. This is significant for many reasons, but most importantly it brings Sirius XM's product to more potential subscribers. As these potential subscribers become familiar with Sirius XM's product, the chance of retaining them increases. Investors should be aware, that Toyota provides unpaid promotional trials in all of their vehicles. These trials are not counted in Sirius XM's subscriber numbers. So if a consumer converts to self paying after the trial is over, they will then become counted in the totals.
Another avenue Sirius XM is looking to expand is their digital offerings, and extending its availability on other platforms. Sirius XM's executive VP and CFO, David Frear, made this clear when he said at the Citi Global Internet, Media, and Telecommunications Conference on Wednesday (1/09/13) that he wanted Sirius XM to be your "one stop shop for premium audio entertainment." Sirius XM has already developed a software application for use on the Apple iPhone (AAPL), Apple iPod Touch devices, Android Smart phone platform (GOOG) and 3G enabled Rim BlackBerry smartphones (RIMM). By now I am sure that we are all aware of the greatly expanding smart phone and tablet markets. If for some reason this sounds like news to you, take a ride on your local train or subway and be amazed at how many people are looking down at their hand held devices. Sirius XM has placed itself in position to take advantage of this emerging market.
We already know that Sirius XM has the premium content subscribers are looking for. It is this superior content that places Sirius XM above its competitors like, Pandora (P) and Clear Channel (CCMO.OB). Sirius XM can now shift its attention to attracting more subscribers. I feel that if Sirius XM is able to keep increasing its base subscriber amount, its stock will continue to show positive growth, and in turn reward its investors.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Please make sure you always do your own research.