Sirius XM (NASDAQ:SIRI) hasn't done well in 2014. The company has underperformed the market, but with the way its business is developing, it can get better. Let's take a look at its recent results and see how Sirius might perform in the future.
Sirius XM reported total revenue of $997.7 million, up 11.2% year-over-year, in the last quarter and beat the consensus estimate of $991 million. The first-quarter EPS of $0.02 was in line with the estimate. The total operating expenses were $750.3 million compared with $650.5 million in the prior-year quarter. The company reported a record first-quarter adjusted EBITDA growth of 28% to $334.8 million, while the adjusted EBITDA margin of 33.5% was also a record high, up 400 basis points from 29% in the year-ago quarter.
The company is moving toward its goal of achieving a paid subscriber base of 30 million, while it estimates an addition of 1.25 million net new subscribers this year. The net subscribers grew by 267,000 in the quarter, setting a record of 25.8 million. Also, self-pay subscribers grew 173,000.
At the end of the reported quarter, Sirius XM had nearly $121.2 million of cash and cash equivalents. According to analysts' estimate, the full-year 2014 revenues are expected to cross the $4 billion mark, while adjusted EBITDA is projected to be around $1.38 billion.
The road forward
Sirius' OEM sales are on a progressive path, and it is creating more ways to serve its OEM customers, such as the deployment of its connected vehicle business. Sirius XM continues to deploy its next generation technology 2.0 satellite radios in new vehicles. This allows the OEMs to cut down the prices to implement its radios and reduce subsidies. The company has also completed an agreement with Nissan (OTCPK:NSANY), which is backed up by the integration of Agero resources and technology. The company acquired Agero's connected vehicle business last year, which is in a strong position currently.
Sirius XM has attained long-term renewals with content providers such as Fox News, Major League Baseball, and the NBA, in order to sustain its content assets as well as its position as the leader in car audio entertainment. Recently, the company launched its radio channel, Today Show Radio, which delivers feeds from both coasts and hit summer concert series.
The threat from Apple
Sirius faces a serious threat from Apple (NASDAQ:AAPL), and it will have to focus on its content in order to keep growing the number of subscribers. Apple's iTunes Radio poses a tough competition with a music index of 26 million songs. Apple's policies with iTunes Radio have been doing very well, as they have planned to pay more to the artists than any other Internet provider in the market.
Apple's CarPlay, launched earlier this year, allows drivers to use their iPhone apps for in-car infotainment and if iTunes Radio becomes a separate app, there is a possibility that some iPhone users may choose to forgo their Sirius XM radio service. Sirius XM has realized that it can stand against Apple only if it provides better content. The company is doing so via adding more and more channels and it looks up to launching some new commercial-free music channels, so as to increase its audience.
While facing serious competition from new music streaming services, Sirius investors should focus on the average revenue it gets from each subscriber as a measure of the company's pricing power, and hence invest accordingly.
Subscriber growth ahead
Sirius' business is growing at a good pace as the total subscribers count is expected to cross 26.5 million by the end of the year. The company has rapidly expanded its used car efforts from 100 dealers in 2010 to over 12,000 in 2014 and is further planning to boost its used car business. The company recently said,
"SiriusXM's Pre-Owned and Service Lane Programs now available to auto dealers using a Reynolds ERA® Dealership Management System via the Reynolds Certified Interface Program
...SiriusXM can now give auto dealers using a Reynolds ERA DMS the ability to easily participate in the SiriusXM Pre-Owned and Service Lane Programs. Dealers enrolled in the SiriusXM Pre-Owned Program can demonstrate SiriusXM during test drives and automatically give customers purchasing any pre-owned vehicle with a factory-installed satellite radio a three-month SiriusXM subscription. Dealers enrolled in the Service Lane Program can also give a two-month SiriusXM subscription to eligible customers visiting their service departments."
Increased focus on this segment of the business should benefit Sirius as it will diversify the company's revenue streams and reduce its dependence on new car sales.
Diversification is important for Sirius as it is facing a big threat from Apple. However, the company has done well to increase the subscriber base, and it should continue doing well in the future. So, Sirius XM should be able to maintain its terrific run in the future on the back of solid subscriber growth.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.