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5 Reasons Why Sirius XM Tanked Today

Shares of Sirius XM Radio (NASDAQ: SIRI  ) took a hit after the company reported third-quarter results this morning. It wasn't the miss on the bottom line. The satellite radio provider's $0.01-a-share profit -- shy of the $0.02 a share analysts were targeting -- included a one-time $107 million charge for early debt extinguishing. Back that out and Sirius XM would have earned nearly $0.03 a share.

However, the rest of the report did have a few hiccups. Let's go over some of the reasons the stock initially moved lower on the news.

1. Sirius XM is expecting negative net additions for the current quarter.
The media giant raised its subscriber guidance for all of 2013. Sirius XM now sees 1.6 million net additions this year, up from its earlier goal of 1.5 million. That's problematic because Sirius XM has already tacked on 1.68 million more subscribers through the first three quarters of the year.

Sirius XM actually lowered its self-pay net subscriber addition target from 1.6 million to 1.5 million, but that's not as bad as it sounds, since that still suggests a healthy uptick in the number of paying customers during the fourth quarter.

2. Revenue fell short of expectations for the quarter.
Sirius XM generated revenue of $961.5 million for the quarter. That represents a reasonable nearly 11% uptick, but analysts were holding out for $969.7 million. 

There's a debt-related asterisk for Sirius XM's earnings miss, but there are no accounting excuses here. It's a miss. Despite healthy subscriber gains over the past year and growing average revenue per user since last year's 12% rate increase, Sirius XM failed to live up to Wall Street's top-line target this time.

3. Revenue guidance for next year is weak despite a surprise rate increase.
Sirius XM surprised the market by announcing that its core basic rate would increase to $14.99 a month in January, a 3.5% uptick from its last increase two years earlier.

The higher rate won't kick in for all subscribers right away, but it should boost average revenue per user again. Here is where Sirius XM's guidance of $4 billion in revenue for 2014 is a bit of a shock. Analysts were targeting $4.18 billion before the increase. Why is this lower?

If you want a scary metric, consider that Sirius XM is targeting $971 million in revenue for the fourth quarter. That translates into an annual revenue run rate of $3.884 billion. Despite a 3.5% basic rate increase in January, $4 billion in revenue next year is just 3% higher than that -- or 6% based on all of 2013. Naturally there are other factors here, and Sirius XM is historically conservative with its guidance. The market still doesn't like that.

4. Sirius XM's streak of double-digit growth is coming to an end.
The satellite radio darling bragged about cranking out seven consecutive quarters of double-digit revenue growth. That streak should stretch to eight as guidance calls for a 12% increase during the holiday quarter. However, eyeing just 6% in top-line growth for next year would mean an end to this streak unless it really blasts through that target.

5. The stock was on a huge run.
This wasn't a bad report. I've highlighted the shortcomings, but churn's holding steady and Sirius XM is generating record growth where it counts, with adjusted EBITDA up 21% and free cash flow surging 26% for the quarter.

However, the stock did hit a fresh six-year high yesterday. The strong run in recent weeks was raising the bar on what investors would expect to keep the rally going. Sirius XM will live to tackle new highs in the future after a normal correction. 

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Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 24, 2013, at 3:40 PM, Varchild2008 wrote:

    But how will SIRI perform once everyone stops driving Cars?

  • Report this Comment On October 24, 2013, at 3:48 PM, Realexpectations wrote:

    Just cancelled the service after having it for almost 5 years.

    Thats what happen when you get rid of someones favorite shows.

    check out their facebook

    filled with customers like myself, spilling out their hate while the company literally gives out an

    automated response.

    exactly what every customer likes to hear

    pun intended

  • Report this Comment On October 24, 2013, at 3:59 PM, CaribouPaku wrote:

    Extinguishing debt which plus refi of debt that will save how much interest over the next what 10 years? Otherwise would of been .03cents per share? 961.5 vs.969.7 or 8.2 million, please drop in the bucket? The positive metrics clearly far outway these analysts targets. Targets just that...Will live to tackle new highs after normal corrections. Normal for whom? Lets see 4 days after filing, than 10 days average will determine what Liberty gets on their buyback and how many shares they sell back? SiriusXm will have over 1+ Billion fcf 2014. Looks pretty good!!! But the stock took a hit, that was bad!!! But maybe not? We will see.

  • Report this Comment On October 24, 2013, at 5:16 PM, vesprit01 wrote:

    The satellite radio provider's $0.01-a-share profit -- shy of the $0.02 a share analysts were targeting -- included a one-time $107 million charge for early debt extinguishing. Back that out and Sirius XM would have earned nearly $0.03 a share.


  • Report this Comment On October 24, 2013, at 5:23 PM, zukerman wrote:


    Sirius knows how many people listen to each channel, yours isn't in demand so out you go. Wasn't it you who made comments before about dropping their service? This time you must really mean it. We here at Yahoo would like to know why you came to a stock message board with a complaint that only improves our bottom line.

  • Report this Comment On October 24, 2013, at 6:35 PM, BillFromNY wrote:

    Nice summary. I haven't seen anyone else noting the one time charge and its effect on earnings.

    The run to $4.00 and beyond was fueled by very high expectations that were not met. Meyer and Frear in their in their widely covered September presentations were nothing but positive. Perhaps they did not expect the four percent decline in auto sales in September after the great August numbers.

    I see the biggest danger if used car subscriber expectations do not increase fast enough to protect Sirius from the inevitable slowdown in new car sales.

    In retrospect, the failure to provide pre-release subscriber numbers this quarter can be seen as a warning sign. Virtually all the good new was in the subscriber numbers. If they had released that information early, then all the focus today would have been on the negative earnings and revenue results.

    For anyone who was into SiriusXM when the company was on the brink of bankruptcy, its transformation into a huge cash machine has been stunning. Forecast of 1.2 billion dollars next year. Hopefully this puts a floor on any huge, precipitous decline in the stock price.

  • Report this Comment On October 25, 2013, at 12:16 AM, draland wrote:

    "Sirius XM will live to tackle new highs in the future after a normal correction. "

    Sounds to me like this Fool-Author expects further gains.....................

    Nuff Said

  • Report this Comment On October 25, 2013, at 12:26 PM, Editman999 wrote:

    I love the way stocks either bounce too high or over correct. Sell on the news and buy on the rumor is alive and well. This is a perfect entry point IMO @$3.70 (for which I just executed a trade) or if you are dedicated long then just hang in there. I believe a bounce to the middle ground of $3.85-$4.00 is in order and no doubt a new high will be reached in 2014..

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