Here's How Sirius XM Radio Is Making So Much for You

Margins matter. The more Sirius XM Radio (Nasdaq: SIRI  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong Sirius XM Radio's competitive position could be.

Here's the current margin snapshot for Sirius XM Radio over the trailing 12 months: Gross margin is 62.8%, while operating margin is 22.4% and net margin is 14.2%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where Sirius XM Radio has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Sirius XM Radio over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 62.8% and averaged 54.1%. Operating margin peaked at 22.4% and averaged -3.9%. Net margin peaked at 14.2% and averaged -75.9%.
  • TTM gross margin is 62.8%, 870 basis points better than the five-year average. TTM operating margin is 22.4%, 2,630 basis points better than the five-year average. TTM net margin is 14.2%, 9,010 basis points better than the five-year average.

With TTM operating and net margins at a 5-year high, Sirius XM Radio looks like it's doing great.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 15, 2012, at 10:31 AM, doubting wrote:

    It is obvious to those who have followed individual companies and the past 3.5 years the merged company that margin growth trends or lack thereof are quite different before and after the merger.

    Today Sirius XM is growing its margins in two clear cut ways. First, due to merger synergies via cost reduction in billions; second via healthy growth and recent modest price increase. The combination of the two will lead to annual fcf increase between 50% and 70%.

    Sirius's 2011 fcf was at $416M; the company projects 2012 fcf at $700M, almost a 70% increase. And this is with about 50% impact of $1.54 price increase and very conservatively guided subscriber growth at 1.3M. 2013 will see at a minimum another 50% fcf growth to about $1.1B. It is quite easy to project 2014 nd 2015 where along with organic growth siri will add substantial savings on renewed MBL contract and finalized GM deal. We also need to factor in much cheaper debt servicing to the tune of $50M to 100M per year due to refinancing and potential pay downs.

    I assume the picture is quite clear - sirius xm will be producing more cash per revenue with margins reaching 50% than any other company in the media and in industry in general.

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