Investors Believe Sirius XM Holdings Inc. (NASDAQ:SIRI) Can Attain Targeted Revenue
Sirius XM Holdings Inc. (NASDAQ:SIRI) is targeting the used-car market to drive its future subscriber and topline growth. The company initially started working with used-car dealers to help it reach used-car owners to sell them its satellite radio service. In the recently times, the company has identified car insurers as another avenue to increase subscription.
A business on growth trajectory
Sirius XM Holdings Inc. (NASDAQ:SIRI) generated revenue of $1.2 billion in 1Q2016, indicating an increase of 11% over a similar quarter a year ago. The topline growth in the latest quarter was primarily supported by strong subscriber additions and a rise in average revenue per user (ARPU). The company said the number of its subscribers increased 11% YoY and ARPU rose more than 3% YoY to reach $12.66 in the latest quarter.
The management is targeting revenue of $4.9 billion in 2016, which now look more within reach considering the double-digit topline growth attained in 1Q.
A huge growth potential
Sirius XM Holdings Inc. (NASDAQ:SIRI) is hoping to double or triple subscription to its radio service over the next few years by targeting the used-car market. To build on the deals it has already inked with over 18,000 used-car dealers in the U.S., Sirius has embarked on the journey of courting insurers. The company recently inked a deal with Liberty Mutual Insurance and is in the process of adding more auto insurance partners. Partnerships with insurers will give Sirius access vital driver and vehicle information that it can use to increase subscription to its radio services.
It is estimated that of the more than 240 million vehicles on the U.S. roads, just about 17 million of them were purchased in the past year. That indicates an enormous number of used-car owners who may not have accessed Sirius radio before.
Sirius’ opportunities in the used-car market are further bolstered by the estimates that this year would see nearly double used cars change hands compared to the previous year.
A sticky service
Sirius XM Holdings Inc. (NASDAQ:SIRI) is not only excelling in adding new subscribers, but also in retaining the subscribers it has gained. The stickiness to the radio service can be explained by its exclusive offerings. The sticky customer base has also created flexibility for the company to raise prices without fear of triggering mass subscriber churn, thus the increase in ARPU.
High cost of subscriber acquisition
In its pursuit of more subscribers, the risk that Sirius XM Holdings Inc. (NASDAQ:SIRI) faces is a spike in subscriber acquisition expenses. In the latest quarter, the company reported that costs related to sales and marketing rose 13% YoY, faster than revenue, which increased 11% in the quarter. One of the areas that Sirius losses money in subscriber recruitment is in the three-month free services it offers new customers as an introduction.
A great bet
Sirius XM Holdings Inc. (NASDAQ:SIRI)’s growth prospects outweigh the near-term burdens such as high sales and marketing costs. The company has registered remarkable subscriber growth in the recent years and the management has identified an area of significant growth over the coming years – the used-car market. Sirius‘ongoing investment in growth has also not stopped benefits from flowing to shareholders. The company returned $588 million to shareholders through shares repurchase in 1Q2016, thus taking out some 159 million from its outstanding share count. The company spent about $2.1 billion in buyback over the last 12 months.
Sirius XM Holdings Inc. (NASDAQ:SIRI)’s expanding cash flow and the massive growth potential signal better times ahead for its investors.