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Sirius XM Goes Both Ways

I guess you can say that the market wasn't sure how to react to Sirius XM Radio's (NASDAQ: SIRI  ) quarterly report this morning. Shares of the satellite radio provider initially moved lower after offering up fresh financials for the first quarter, only to move higher an hour and change into the trading day.

Revenue climbed 11% to $997.7 million, fueled by a 6% uptick in subscribers and recent price hikes that have pushed average revenue per user higher. Analysts were only settling for $994.6 million on the top line. Adjusted earnings soared 46% to $121.4 million, but given Sirius XM's more than 6 billion shares outstanding, the cruel division math here leaves us matching Wall Street's forecast of $0.02 a share.

It's not a surprise to see adjusted earnings -- and free cash flow, up 56% for the quarter -- continue to grow faster than Sirius XM's revenue. This is a scalable model with high fixed costs and low variable expenses. As long as subscriber growth is increasing, that should change as programming and other content and servicing costs remain relatively fixed. 

Sirius also impressed with low churn and healthy subscriber growth, but it wasn't a perfect performance. The percentage of car buyers with free trials staying on as paying subscribers remained at a historical low of 42%. More important, Sirius XM didn't revise any aspects of its guidance higher. 

  • Last year at this time it bumped up its outlook for free cash flow for all of 2013.
  • A year earlier it raised its forecast for net new subscribers for all of 2012. 
  • The year before that we saw Sirius XM boost the free cash flow component of its guidance for 2011.

You have to go back four years to find the last time that a first-quarter report didn't have at least one piece of its guidance bumped higher. That isn't enough to penalize Sirius XM on a day when there are plenty of positives in its report. But Sirius XM had spoiled investors by being conservative in issuing its forecasts in recent years, juicing them up as the year would play on. Is that over?

Sirius XM paints a promising picture of its business. It pointed out during this morning's earnings call that there are just 62 million cars out there with installed Sirius or XM receivers. That figure should nearly double to 120 million in five years. But we know that it isn't that easy. The percentage of those receivers that are activated seems to decline every year, and even though Sirius XM plays up the connected car as more of an opportunity than a threat, it is something that we can't ignore if the game of conservative guidance that we've been playing has changed. 

It was a good report out of Sirius XM. It's just a shame that it wasn't a great report.

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Read/Post Comments (9) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On April 24, 2014, at 4:37 PM, Guggerpaul wrote:

    The earnings of this company are and have been manipulated, this quarter I was expecting it but couldn't see where it was coming from then BAM! Siri has to foot the bill for Liberty's failed takeover. This is wrong on so many levels. Billionaires just do what they want and the sec does nothing. and they wonder why people are afraid of the stock market, IT REALLY IS RIGGED Stevie Wonder could see this!

  • Report this Comment On April 24, 2014, at 5:24 PM, goodguy36 wrote:

    "but it wasn't a perfect performance".

    Well Duh!!, nobody's perfect. Why don't you write about why SIRI has dropped from $4.18 previously, to the current level. Opinions about that would be a hellava lot more interesting than rhetoric you are spouting.

  • Report this Comment On April 24, 2014, at 7:02 PM, dannysboy wrote:

    I would have liked more explanation on the increase in expenses.

    How much was the Liberty expense and Agero must have brought a lot of expense to the table.

    A 100 million dollar increase in operating expenses needs to be explained in some detail. Let's begin with "Loss on change in value of derivatives" ----$27,023 million, with no charge in 2013. Is that the Liberty deal.

  • Report this Comment On April 24, 2014, at 7:09 PM, sirifair6 wrote:


    It appears your main concern is the customer growth. So is mine. I expected a much better customer growth to the tune of 300K self pay subs. However, during the CC both Meyer and Frear were adamant that they will hit 1.25M both new and self-pay subs and basically draw no distinction between them. It appears this is not a challenge for them. I hope so because they need to add about 380K self pay subs in each of the next three Qs.

    During their conference call they didn't appear shy at all about siri's future extolling tons of great opportunities in the customer growth area. I will give the benefit of the doubt and a chance "to redeem" themselves in Q2. I am still optimistic.

    As to their financial performance, it was mostly stellar at least on the surface. FCFhas gone up by $80M to $222,789.00 vs. Q1, 2013. EBIDTA of $333,782M is $72M more than in Q1, 2013. SAC was phenomenal at $35 vs. $47. ARPU was not good a at all at $12.18, some 28 cents less than in Q4, 2014.

    Still, I am not too excited about the financials either because I suspect their significant improvement is due to latent factors like smaller interest payments and no refinance costs that definitely added to the fcf and in part to EBIDTA.

    As I have been saying for a long time, I expect all action in the 2nd half of the year when liberty issues its tracking stock and may rejoin the buybacks if the price is right. I suspect that Meyer will find a way to make the share price right, that is much higher, by then.

  • Report this Comment On April 25, 2014, at 1:34 AM, dsheahan wrote:

    Hi Mr. Munarriz, I'm a long time Motley Fool follower and I enjoy your Sirius coverage. I understand that you don't have a crystal ball...but here is my question: Do you feel that Liberty Media is biding it's time and may make another takeover bid? Are they able to? This seemingly is a corporate law issue and I'd like to get your take on it. The last "shake-up" from Liberty certainly sent a lot of folks running for the exits. It would be a breath of fresh air to have someone who is in-the-know about what is going on behind the scenes legally. I may be asking too much, but I'd appreciate your input. Thank you.

  • Report this Comment On April 25, 2014, at 6:03 AM, zukerman wrote:

    Nauseous would best describe the feeling I get when reading or listening to anyone responsible for reporting corporate progress here at Fool, or anywhere for that matter. Gone are the days where a company could be looked upon as ambitious or pioneering when moving forward with a longer term business plan. Day after day week after week we hear that same reply you got from that English teacher that proclaimed (there's no such thing as an A). Never in my 40+ years of adult life have I heard such whiny negativity and downright fear when it comes to the health of our economy and corporate America. Hell, even (sirifair) sounds as if he's questioning Sirius' ability to make the necessary adjustments to exist in this crowded scrum. For years Sirius depended heavily on the dashboard for the majority of it's income and many were worried that that would be it's downfall, now that they've taken a stab at a different stream of revenue, albeit still relying on the auto, we hear the same ridiculous banter. Muhammud El Arian, formerly at Pimco has it right, our biggest challenge will be to go beyond the fear and innovate and ignore the naysayers of the day. We've been shaken by the recent recession and it's left us unable to hope, dream or take a positive outlook toward our future. The title for this groundhog day of a story is typical, nothing is good enough, or that's great, but! Sirius' biggest headwind is removing Malone's thumb, clear and simple. We have the wrong owner here, one that spends his time wrangling deals rather than building the individual pieces of his empire. Now he spends his time wringing as much money as he can from Sirius to foot the bill of his next quest. The inability to see the future with a snake like Malone is what holds Sirius back and not it's balance sheet. This stock will travel sideways until the tracking stock happens, if it does, and that's the way it is. Another 93 million today, but it wont help Sirius as much as it helps Malone.

  • Report this Comment On April 25, 2014, at 8:11 AM, JJS wrote:

    Wall Street, the world's largest casino (credit Citron with that moniker just to give them a PLUG) is also the center of confusion, most varied opinions, and down outright I don't care what I say mentality. Or is it the Barnum affect? No fool is Motley I have to admit but at the end of all articles I see that pitchman selling it's wares like the guys setting up shop outside London's world class department store. That said, Motley fool most of the time makes sense to me and always leaves food for thought. If I were a wise man I would subscribe but my investment participation is so small it wouldn't pay and all the storage in my personal computer sitting on top of my shoulders has more info than it can input after years of usage. Needs new drives and software. Good thoughtful analysis of SIRI.

  • Report this Comment On April 25, 2014, at 8:28 AM, SouthernBeach wrote:

    Earning report just continues to show what a BAD job Sirus is doing under the Frear, Myer and Hand pick Malone Board. Mel left a vibrant Company in the care of people that in my mind are not capable of running the company. If success is judged on Company value they all Grade "F'. One of them need to get the Guts to tell Malone that they run Sirus, not him....oh Malone does run Sirus. Whoever runs Sirus they should be embarrassed. I bet Mel has a good Laugh every night looking at the clowns running his company.

  • Report this Comment On April 25, 2014, at 8:31 AM, sirifair6 wrote:


    First, I did not find anything in Rick’s look at siri's results that I would stamp as negative.

    Second, asking reasonable questions is a reasonable thing.

    My question to siri management is to explain miserable subscriber results. When they tell me that winter was miserable, I tell them "b@llsh@t". The OEMs sold in Q1, 2013 were about 70K than in Q1, 2013. What Meyer and Frear are saying about that is disrespectful.

    Both Meyer and Frear repeated several times with a straight face that they will hit 1.25M sub additions in 2014 without a problem. They both sounded as if this was a done deal. OK. This has to mean that in the next three quarters they will add about 360K subs. Moreover, they also sang in chorus that they see no difference between self pay and net subs. This is another BS because the net subs is an aggregate of promotional + self pay subs. Are they trying to say that their promotional subs are going with all OEMs like with GM???

    I do not understand their math. And when I do not understand something I ask questions. So far, I have not seen any answers. Still, I give them the benefit of the doubt because my ten years of experience with siri tell me that the company has been innovative and has always looked for solutions and finds them. One of these brilliant solutions is of course connectivity via Agero.

    To conclude, if the company performs as was touted at the CC the brightest future a company may have I will be the first one to tell them that I was wrong. What is left for them is to show me the money, or the RESULTS that prove that what we hear from them is not a lip service for the naïve or fools.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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