Sirius XM Q1 Earnings: On A Bullish Path

| About: Sirius XM (SIRI)

Summary

Sirius XM reported revenue of $1.2 billion.

Sirius XM reported a profit of $0.03 per share.

Sirius XM continues share buyback program by purchasing $159 million shares.

Sirius XM (NASDAQ:SIRI) has reported its earnings and for Q1 of 2016 the company matched street expectations at a profit of $0.03 per share. The company reported record revenue and raised its subscriber guidance for the year to 1.6 million from the previous guidance of $1.4 million. Highlights of the quarter included:

  • First Quarter Revenue Climbs 11% to $1.2 Billion, a Quarterly Record.
  • Net Income Rises 62% to $171 Million in the First Quarter.
  • First Quarter Adjusted EBITDA Grows 11% to $441 Million.
  • Free Cash Flow Per Diluted Share of 6.4 Cents in the First Quarter, Up 31%.
  • 465,000 new net subscribers, bringing total subscribers to over 30 million.
  • $588 million spent to repurchase 159 million shares.
  • Sirius XM fully completed the transition of our Sirius network from the original three highly inclined orbiting satellites to two geostationary satellites.

Sirius XM is on a very bullish path and seems to be the "tech" company that is bucking the trend of seeing sales flatten out. Sirius XM is actually a blend of tech, media, and subscription. This dynamic company character is something that gives the company stability even in difficult market conditions.

One very impressive number from the quarter was the fact that subscriber revenue has topped $1 billion dollars. The connected vehicle aspect of the business accounted for a portion of that number, but seeing a company with subscriber revenue of over $1 billion per quarter makes a quality statement.

Sirius XM held tight on most of its guidance, but did take the opportunity to raise the subscriber guidance from 1.4 million to 1.6 million based on a very strong Q1 subscriber addition performance. At this stage the fully updated guidance is as follows:

  • Net self-pay subscriber additions of approximately 1.4 million,
  • Total net subscriber additions of approximately 1.6 million,
  • Revenue of approximately $4.9 billion,
  • Adjusted EBITDA of approximately $1.78 billion, and
  • Free cash flow of approximately $1.4 billion.

Sirius XM traded flat on the news, which given that expectations were met is reasonable. That being said, the attractive business model of Sirius XM may be something that analysts and investors will begin to focus on given a bit of a mixed bag that we are seeing these days in various quarterly reports. By example, Apple (NASDAQ:AAPL) got beat up badly on a revenue miss, while Amazon (NASDAQ:AMZN) soared on an impressive quarter. Investors looking for stable and continuous growth may well find Sirius XM as an attractive place to invest.

The share buyback program continues and the company bought back an impressive 159 million shares during Q1. That is an impressive 2.6 million shares bought back per trading day. The net result of the Q1 buybacks brings the Liberty media (NASDAQ:LMCA) stake to about 64%. The Liberty media stake in Sirius XM trades in 3 tracking stocks (NASDAQ:LSXMA), (NASDAQ:LSXMB), and (NASDAQ:LSXMK).

In my opinion Sirius XM is setting up for not only a stable 2016, but an impressive 2016. This will be followed by a year where the company launches its next generation service called SXM 17. This new generation of Sirius XM will allow seamless two-way communication vs. the one way system that is now in place. A two way service will allow Sirius XM to expand its offerings to consumers and will certainly keep it on par or superior to other connected car offerings. In my opinion, SXM 17 is the one aspect of the Sirius XM business model that actually could make Sirius XM a very important discussion on many Boards of Directors thinking about mergers and acquisitions. It is also a dynamic that could bring about a move by Liberty Media sonner rather than later.

In my opinion the next several months could be very critical for Sirius XM. Whether investors play Sirius XM stock directly, or one of the Sirius XM trackers, the results should be positive. Sirius XM is currently flirting with getting above $4.00 per share. It has risen above and re-traced several times, and at some point will make a move that could keep it above $4.00 for good.

As I look at the numbers, I think that Sirius XM passed on an opportunity to raise guidance in other areas than subscribers. I feel that when the company reports Q2 numbers that we will see other guidance adjusted upward and this could create something bullish for the second half of the year.

I like Sirius XM as it currently stands. I like a consolidation of the Liberty stake and the non Liberty stake even more. I like the stated progress on SXM 17. I like the fact that Sirius XM offers stability with low downside risk and great upside potential. The street may not have jumped up and sown about Sirius XM's Q1 report, but sometimes it takes people time to see that the potential with this company is working toward exciting. Stay Tuned!

Disclosure: I am/we are long SIRI, LMCA, LSXMA, LSXMK.

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.