This Week in Sirius XM Radio

Things never get dull for the country's lone satellite-radio provider. Shares of Sirius XM Radio (NASDAQ: SIRI  ) moved lower on the week, sliding 2.5% to close at $3.49. The media darling's dip contrasted with modest gains for the Dow, Nasdaq, and S&P 500 on the week.

There was more going on beyond the share-price gyrations, though. Sirius XM posted quarterly results, and it was treated to an analyst downgrade. On the streaming front, Pandora (NYSE: P  ) also moved lower after disappointing investors with its fresh financials.

Let's take a closer look.

Earn, baby, earn
Sirius XM posted fourth-quarter results on Tuesday morning. We know by the lower stock price that the market wasn't wowed by the report, but let's take a closer look. 

Revenue climbed a better-than-expected 12% to top $1 billion. It's the first time Sirius XM hit 10 figures, two quarters earlier than Wall Street was forecasting. Its posted profit of $0.01 a share was half of what analysts were targeting, but once you back out one-time items and adjust for a more accurate tax rate, the satellite-radio king would have landed just ahead of where the pros were perched.

The market wasn't pleased with seeing monthly churn inch higher to 1.9% and the conversion rate slip to 42%, but that was partly explained during the subsequent conference call. Buyers of used cars are making up a larger part of the subscriber audience, and they convert less often after enjoying their free trials. The conversion rate for used cars was 34% during the quarter, compared with 44% for buyers of new cars with factory-installed receivers.  

Downgrade depot
Sirius XM's report didn't impress Wunderlich Securities analyst Matthew Harrigan. He downgraded the stock from "buy" to "hold," lowering his price target on the shares from $4.20 to $3.80.

He's concerned about Sirius XM's appeal as more cars rolls out with seamless access to Bluetooth connectivity to play free or nearly free Internet radio apps. He also thinks Liberty Media (NASDAQ: LMCA  ) is unlikely to sweeten its buyout bid. 

That's an odd stance since, investors generally haven't been impressed by Liberty Media's terms to absorb Sirius XM, and Liberty Media needs a majority of shares outside its stake to approve the deal.

Cracking open Pandora's box
Pandora shares took a hit after the company posted mixed results. Revenue growth was roughly in line with expectations, and the leading streaming service cranked out the most profitable quarter in its history.

The problem at Pandora was its guidance as its top- and bottom-line outlook for 2014 fell well short of what Wall Street was forecasting. It also didn't help that it revealed a sequential dip in active monthly listeners in January. 

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  • Report this Comment On February 08, 2014, at 10:21 AM, sirifair6 wrote:

    Rick,

    You are explaining the lower conversion rate as

    "...and the conversion rate slip to 42%, but that was partly explained during the subsequent conference call. Buyers of used cars are making up a larger part of the subscriber audience, and they convert less often after enjoying their free trials. The conversion rate for used cars was 34% during the quarter, compared with 44% for buyers of new cars with factory-installed receivers. "

    I may be wrong but my understanding is that free trials in used cars and may be even in OEMs (here I am not that sure) are not counted toward subscriber conversion at all. Technically, we do not even know about these free used car subs.

    My theory behind the 42% conversion is that Sirius decided, hopefully for an honest reason, not to retain as aggressively during this quarter as before. This is why the ARPU climbed relatively quickly to $12.46.

    Now, we need to see what will happen in the next quarters and whether Sirius would be focused on higher ARPU vs. higher OEM conversion rate. Today, the company can afford some luxury of choosing between the two because the used car market is coming up and the Agero unit will start bringing revenue that will be growing exponentially with years similar to the growth of Sirius and XM in their earlier years.

  • Report this Comment On February 10, 2014, at 9:16 PM, confused88 wrote:

    Rick, I am a hard working man early 60s and cant understand why I should dump my holdings in SIRI for $3.50 when the buyout price is $3.82 . Can the answer be that liberty media isn't worth the price it is valued at. Might I take a loss with the conversion rate of .75 shares of liberty media and I would not get a vote. This is not logical . It would seem that that the wolf is in the hen house . Can this kind of thing happen ? Can SIRI kill the wolf and get $4.80 plus? I think I will stick with the farmer . Great story though ,I do like fiction ,please send more.

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