Sirius XM Holdings (NASDAQ:SIRI) posted better-than-expected quarterly results last Thursday morning, and followed that up with a conference call that shed some light on how the past few months have played out.
Sirius XM also provided a glimpse of its future. Let's go over a few of the more interesting morsels said during the earnings call.
Our main competition has been and will remain free ad-supported entertainment. This doesn't change in the connected vehicle.
Sirius XM sees the connected car as both a threat and opportunity, but it wants to make it clear that its competition continues to be the same free apps that it has been butting heads with during the years.
The good news for Sirius XM investors is that there's been plenty of growth to be shared between the alternatives to terrestrial radio. As more cars roll off the line with the ability to tether smartphone apps to audio systems, Sirius XM can still succeed.
Sirius XM can make it up in volume
New and used car conversions reached all-time highs in 2014.
This may seem to be a deceptive statement at first. After all, Sirius XM's conversion rate on new cars -- the percentage of users who stay on as premium subscribers after their initial free trials run out -- fell to an historical low of 40% during the fourth quarter.
This would normally be problematic, but Sirius XM still managed to post its most successful holiday quarter in terms of net subscriber additions since 2007. The key ingredient in this recipe is a surge in volume. A spike in new cars sold, combined with deeper penetration as 71% of new cars now come with a Sirius or XM receiver, are keeping growth alive at Sirius XM.
Sirius XM is eating its own cooking
We also see our own stock as an investment. We believe it represents a good value today. We have spent $2.5 billion last year to retire 739 million shares, which was roughly 12% of our outstanding share count at the beginning of the year. I believe you would be hard-pressed to find many companies with such a disciplined approach to rewarding shareholders.
Sirius XM continues to eat away at its gargantuan count of outstanding shares, and it's not done yet. It still has another $1.7 billion authorized for buyback, and it's still trading at a low leverage ratio relative to its eventual target.
It's a Pitbull attack
When we do the research we do and look at different segments of programming, the bilingual, bicultural Hispanic today looks a lot like -- in your case -- what all of our subscribers look like. We have gone with our traditional strategy of trying to find out what would be attractive to that audience, but also to our mainstream audience. The first sort of programming launched in that area will be Pitbull and his radio channel, which will have bilingual material in that.
This response came after Sirius XM discussed how its bet on Piolin -- the Mexican immigrant who was a syndicated morning show star on terrestrial radio through the U.S. before launching his own show on Sirius XM in late 2013 -- didn't pan out. Piolin was a hit on free Spanish-language radio, but his fans didn't follow him to premium satellite radio.
Sirius XM's plan now is to go for celebrities who offer bilingual content.
Sirius XM doesn't want to be a label
In terms of the areas we're looking, we continue to look. I quite candidly don't understand why a label would makes sense for us for instance, because there business model is entirely different than ours. If you're a label and you want to make money, you want mass distribution of your product on every platform, and by the way so do major artists. And what we're looking for is having all of that content, and then our own suite of very unique and compelling content. So I wouldn't say never, but I would say on the things I look at, it's not on the top of our list.
One of the more outlandish questions asked is if Sirius XM would consider buying a record label. The logic behind the suggested move may be to recover some of its escalating music royalties by actually owning some of the content.
Sirius XM could also use its platform to promote its own roster of artists, but that would be a conflict of interest. Sirius XM is better served as a free agent instead of striking a deal that would create more problems than opportunities.
Sirius XM will have plenty of opportunities to make acquisitions in the coming quarters. It's just not going to find itself on bended knee to hook up with a stagnant record label.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.