Revenue and Profitability are Stronger Than Ever at Sirius

Sirius has provided great top-line growth and profit margins over the past couple of years.

Mar 29, 2014 at 10:00AM

Sirius XM Holdings (Nasdaq : SIRI) recently released its yearly filing with the SEC, with revenue and profitability looking stronger than ever.   Though the deferred tax assets are a thing of the past, Sirius' ability to grow organically has investors with their ear to the ground on this stock.

Revenue
Sirius's revenue has increased significantly over the past few years. The company segments its revenue by subscribers, advertising, equipment, and other. The primary source of revenue is subscription fees. Below is a breakdown of Sirius's revenue from 2011 to 2013.

Revenue growth was strong, as it increased in every category. As of December 2013, Sirius had 25,559,310 subscribers. This is up 7% from 23,900,336 subscribers in 2012. Similar to other subscription based service companies, Sirius reports average revenue per user (ARPU). For 2012 and 2013, ARPU was $12.00 and $12.27 respectively. The increase was driven primarily by the contribution of the U.S. Music Royalty Fee,  and an increase in subscriptions to premium services. The increase in the royalty fee will continue to add to ARPU moving forward since it offset rising royalty costs. Foolish investors should continuously monitor ARPU since it directly correlates with Sirius' revenue.

Taxes
Sirius's income tax was $14 million, -$3 billion, and $260 million over 2011, 2012, and 2013 respectively. The extraordinary income tax benefit of $3 billion in 2012 was due to likelihood that certain deferred tax assets would be realized. Investors should expect normalized income tax moving forward.

Profitability
Investors will be disappointed if they expected 2013 earnings numbers anywhere close to 2012 due to the income tax benefit.

Ratio

2011

2012

2013

Operating profit margin

22%

26%

27%

Net profit Margin

14%

102%

10%

As the above diagram shows, the net profit margin was actually greater than 100% in 2012. Somewhere in between the 10% and 14% profit margin is likely to be achieved in future results. Income before taxes provides a normalized view of Sirius' earnings moving forward. The company had income before taxes of $441million, $474 million, and $637 million in 2011, 2012, and 2013 respectively. This shows that Sirius is organically growing profitability.

Foolish takeaway
Sirius's revenue is growing in every category. This is further supported by a $0.27 increase in ARPU. Pretax profitability has also been growing steadily. These facts alone make Sirius XM worth a closer look by Foolish investors looking to own a piece of a growing and profitable enterprise. 

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christian sgrignoli has no position in any stocks mentioned. The Motley Fool owns shares of Sirius XM Radio. 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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