SIRI - Sirius XM Radio

[DCG]

I stream podcasts as well as radio using apps like TuneIn Radio over Verizon LTE and almost never have it cut out (3G was a different story). I'm in Burlington, VT, which is a city, but far from a big metropolitan area. When I drive out into the country service is much more spotty. Sirius is great when making longer trips, but for people living in areas with LTE and listening on their daily work commute for example, it's good. I don't have experience with AT&T's '4G' so can't comment on that.

[thefatbaboon]

DCG,

 

Even with a satellite radio installed and paid for...you'll sometimes listen to TuneIn radio + LTE over Sirius?  Obviously I understand podcasts, this american life etc...but if you don't mind me asking, what programming specifically do you prefer on TuneIn?  Local music stations that you are used to?

 

thx

[DCG]

DCG,

 

Even with a satellite radio installed and paid for...you'll sometimes listen to TuneIn radio + LTE over Sirius?  Obviously I understand podcasts, this american life etc...but if you don't mind me asking, what programming specifically do you prefer on TuneIn?  Local music stations that you are used to?

 

thx

 

 

There is a big sports station from NYC (WFAN) which I grew up listening to that I still listen to from time to time, as well as a jazz station I liked a lot when living in Denver. I definitely listen to Sirius much more frequently than other radio though...largely for talk shows, Howard Stern, Sports, News, etc.. I find the music programming on Sirius kind of week though. For music, if I'm not listening to specific albums, I prefer either iTunes music, Pandora, or Spotify to Sirius.

 

 

 

 

[thefatbaboon]

DCG,

 

Even with a satellite radio installed and paid for...you'll sometimes listen to TuneIn radio + LTE over Sirius?  Obviously I understand podcasts, this american life etc...but if you don't mind me asking, what programming specifically do you prefer on TuneIn?  Local music stations that you are used to?

 

thx

 

 

There is a big sports station from NYC (WFAN) which I grew up listening to that I still listen to from time to time, as well as a jazz station I liked a lot when living in Denver. I definitely listen to Sirius much more frequently than other radio though...largely for talk shows, Howard Stern, Sports, News, etc.. I find the music programming on Sirius kind of week though. For music, if I'm not listening to specific albums, I prefer either iTunes music, Pandora, or Spotify to Sirius.

 

Have you noticed any change in you listening choices with the availability of 4G?  I mean, do you think you're listening to Sirius less now that (at least in your city) there isn't the buffering and cutting that you used to get with 3G?

[DCG]

DCG,

 

Even with a satellite radio installed and paid for...you'll sometimes listen to TuneIn radio + LTE over Sirius?  Obviously I understand podcasts, this american life etc...but if you don't mind me asking, what programming specifically do you prefer on TuneIn?  Local music stations that you are used to?

 

thx

 

 

There is a big sports station from NYC (WFAN) which I grew up listening to that I still listen to from time to time, as well as a jazz station I liked a lot when living in Denver. I definitely listen to Sirius much more frequently than other radio though...largely for talk shows, Howard Stern, Sports, News, etc.. I find the music programming on Sirius kind of week though. For music, if I'm not listening to specific albums, I prefer either iTunes music, Pandora, or Spotify to Sirius.

 

Have you noticed any change in you listening choices with the availability of 4G?  I mean, do you think you're listening to Sirius less now that (at least in your city) there isn't the buffering and cutting that you used to get with 3G?

 

 

Probably about the same. It's more about content. I can generally find better content on podcasts and apps on my phone than on Sirius (I posted in the Liberty Media thread recently about how I thought podcasts will continue to take listeners away from Sirius and people jumped on me).

 

 

I have a 'lifetime' subscription to Sirius that I purchased about 10 years ago. I like to listen to Howard Stern a lot, but other than that I don't know if Sirius has good enough content I would pay monthly for.

 

 

There are times where I listen to music on Sirius simply because it's more convenient than taking my phone out of my pocket and navigating through it. I think things like Apple's new CarPlay could make that much more convenient.

[thefatbaboon]

I love podcasts too.  So much fascinating stuff available. 

 

Will these new cars being delivered with Carplay still have the satellite radio installed?

 

 

[DCG]

I love podcasts too.  So much fascinating stuff available. 

 

Will these new cars being delivered with Carplay still have the satellite radio installed?

 

 

Not sure, but a good question.

 

 

There's a lot I like about Sirius, and I've used it for a decade. The main benefit of it is to be able to drive anywhere and not lose service. Aside from a few personalities and some sports program on Sirius, why pay a monthly fee to Sirius when you can get plenty of great content for free on your smartphone and run it through your car stereo? I just think more and more people will ask the question in the coming years.

[loganc]

I love podcasts too.  So much fascinating stuff available. 

 

Will these new cars being delivered with Carplay still have the satellite radio installed?

 

 

Not sure, but a good question.

 

 

There's a lot I like about Sirius, and I've used it for a decade. The main benefit of it is to be able to drive anywhere and not lose service. Aside from a few personalities and some sports program on Sirius, why pay a monthly fee to Sirius when you can get plenty of great content for free on your smartphone and run it through your car stereo? I just think more and more people will ask the question in the coming years.

 

@DCG I was probably the primary person that "jumped" on you about the impact of podcasts on SIRI.  To try to clarify, I am not dismissing the fundamental premise of what you are saying - podcasts and similar "free" content are a risk factor to SIRI.  However, I do not believe that data exists to justify the assertion that podcasts are "disrupting" SIRI - look at the paid subscriber and ARPU growth of SIRI, which have occurred along side a very vibrant growth of podcasts.  Also, I wouldn't discount the fact that SIRI can improve the content offering over time.  I don't think that the SIRI management is dumb enough to just sit on their hands and watch their business be eroded by podcast content.       

 

@thefatbaboon I think it would also be interesting to figure out the incremental cost to the end user of CarPlay.  Apple isn't going to provide this functionality for free.  I can't seem to find any information about that.  At this point, it seems like CarPlay will likely be a "niche" offering that won't eat significantly into the SIRI business model.  However, similar to the situation with Google Fiber in cable, one cannot discount the power of AAPL et al. and large amount of capital they could expend.

[Liberty]

A few thoughts: I would be very surprised if Sirius wasn't one of the first apps offered on CarPlay. Apple is making most of their money there by making their iPhones more useful and sticky, not through iTunes Radio in the car or whatever. This means that they have no real reason to keep Sirius out of it (there's a Sirius app for iOS too). In fact, they probably want it there because it makes CarPlay better for the user, which makes iPhones more useful too by association.

 

Sirius will also likely add some IP functionality to its offerings over time to add more on-demand content (like podcasts, or replays, or custom playlists, etc). I think that they can keep doing well as long as they combine quality exclusive content + convenience + no ads and other annoyances + relatively low cost in the grand scheme of things (equivalent to a couple Starbucks coffees a month). They've even said that outside of the US, car OEMs are asking them to come, and they said that at first they'll probably expand oversees over the IP/cellular network, so they definitely are working on that capability (plus they already stream over the net and have smartphone apps).

 

Sure people who are counting their pennies will probably use their cellphones, but these people are probably already listening to downloaded content or free terrestrial radio. Sirius is going after the mainstream who is annoyed by ads and wants sports, talk radio, varied music at their fingertips without having to download stuff and curate playlists, etc. They're basically selling content + convenience (no worries about phone batteries, launching an app, being in a bad reception area, etc. just push a button on the center console and go).

 

The challenge of their main competition like Pandora is that they are a lot less profitable than SIRI, so they have a lot less cash to invest in exclusive content (it's a vicious/virtuous cycle, depending on which side you're on). It's a bit like how HBO bootstrapped itself over time; more quality content = more money, which they reinvest into more quality content, which increased how much they made, and so on. It's easier to get Howard Stern and other stars, and MBL and live shows and such for SIRI than any internet radio. And all the free stuff like podcasts, SIRI has access to that too if they really want it (why would podcasters ever say no to being distributed via SIRI? they'd love it). They could build it into their smartphone app and you get it to play over your car stereo or whatever.

 

There's definitely increased competition, but I think SIRI's well positioned to be quite competitive.

 

Update: This presentation has a few slides that compare SIRI with pandora, spotify, clear channel, and other media businesses:

 

http://files.shareholder.com/downloads/SIRI/3099318286x0x696048/083d30de-f8d2-4baa-a6a7-a4a069c0956e/SiriusXM%20Liberty10.10.13FINALPDF.pdf

[thefatbaboon]

What scares me...

 

Assume we get to the point that 4G delivery is good enough.

 

At that point Sirius is a content collator, an App. (Whether it's on Carplay dash, or any other connected dash is not important.)

 

A contentent collator is only as good as his content.

 

Radio content is damn cheap.  Even the marque of marque names like Stern is peanuts.

 

A big dog (Apple, Google, Microsoft) or a little dog with balls and a hyped market cap (Pandora, A N Other) can pay cash or stock to buy content.

 

I know that Sirius' content agreements are for multi-year terms - obviously I'm not thinking this happens overnight.

 

But Sirius, in a world of connected cars, seems very vulnerable to me.

 

[loganc]

What scares me...

 

Assume we get to the point that 4G delivery is good enough.

 

At that point Sirius is a content collator, an App. (Whether it's on Carplay dash, or any other connected dash is not important.)

 

A contentent collator is only as good as his content.

 

Radio content is damn cheap.  Even the marque of marque names like Stern is peanuts.

 

A big dog (Apple, Google, Microsoft) or a little dog with balls and a hyped market cap (Pandora, A N Other) can pay cash or stock to buy content.

 

I know that Sirius' content agreements are for multi-year terms - obviously I'm not thinking this happens overnight.

 

But Sirius, in a world of connected cars, seems very vulnerable to me.

 

I think the fundamental premise of your concern is reasonable and you bring up a lot of good points.  It will take me a little more time to put together a response that addresses all of the issues that your raise, but I have a few general comments.  First, I think it is worth contemplating the fact that mobile bandwidth isn't free and that the satellite infrastructure that SIRI has in place is a very efficient content delivery mechanism.  Second, while you have highlighted numerous risk factors, SIRI doesn't need 100% share of the 250MM+ cars on the road to be an extremely profitable business.  As I am sure you know, the SIRI model doesn't require explosive subscriber growth to drastically increase the value of the business with respect to FCF per share.  Finally, I think it is worth mentioning the fact that SIRI management has done an incredible job in managing the operations of the business post-merger.  As an example, they have refinanced the company at very favorable rates and have done a very good job in decreasing programming and content costs. 

 

Anyway, I'll get to work on a more detailed post to try to more clearly represent my thoughts with respect to the risk factors that you have highlighted.   

[txlaw]

You guys might be interested in Sprint's Sound Sessions announcement:

 

http://newsroom.sprint.com/news-releases/sprint-enhances-framily-offer-with-unrivaled-sound-experience-on-exclusive-handset-exclusive-music-offerings-free-spotify.htm

[Liberty]

http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=862557

 

Revenue Exceeds $1.0 Billion, Up 10% From Second Quarter of 2013

Net Income of $120 Million

Adjusted EBITDA Grows 31% to a Record $370 Million

Free Cash Flow Increases 42% to a Record $335 Million

Share Repurchases Exceed $1.6 Billion in 2014

2014 Financial Guidance Raised

[merkhet]

Has Sirius and/or Liberty Media given 2015 guidance on net new subscriptions?

[loganc]

Has Sirius and/or Liberty Media given 2015 guidance on net new subscriptions?

 

I don't believe so.  I believe the only long term guidance they have given is with regard to SIRI equipped cars - 120MM in 2019 as of the recent annual meeting.

[merkhet]

Has Sirius and/or Liberty Media given 2015 guidance on net new subscriptions?

 

I don't believe so.  I believe the only long term guidance they have given is with regard to SIRI equipped cars - 120MM in 2019 as of the recent annual meeting.

 

Weird -- for some reason, I have it in my head that at one point someone confirmed 1.25 million net new subscriptions this year (2014) and a likelihood of 1.5 million net new subscriptions next year (2015).

[ItsAValueTrap]

Has anybody looked at Sirius XM Canada (XSR.TO) versus Sirius XM (SIRI)?

 

XSR has higher operating costs due to the costs of complying with Canadian regulations.  It has to pay for Canadian content / Canadian programming.  (TV and radio broadcasters in Canada want to broadcast as little CanCon as possible because it isn't profitable.  They only do CanCon because they have to.)  In the past, Sirius XM had its CanCon requirements lowered to 10% from 35% because it wasn't making money.  I don't know if Canadian regulators might impose more costs on Sirius XM Canada now that it is profitable.

 

XSR pays licensing fees to Sirius.

In 2005, Sirius Canada, as one of the predecessors of the Company, entered into a license and service agreement with Sirius XM whereby the Company acquired the right to distribute the Sirius network channels owned or licensed by Sirius XM within Canada. In return, the Company is obligated to pay Sirius XM a percentage of its gross revenue, to a maximum of 15%, and reimbursement of other charges paid on Sirius’ behalf.

In 2011, the Company acquired a license and technical service agreement with Sirius XM whereby the Company acquired the right to distribute the XM network channels owned or licensed by Sirius XM. In return, the Company is obligated to pay Sirius XM a percentage of subscriber revenue (15%), activation charges, fees under the Technical Service Agreement and reimbursement of other charges paid on SXM’s behalf.

 

To me, XSR is the more "leveraged" version of Sirius.  Its higher cost structure is like a form of debt.  It might be interesting given its inherent leverage???

[Liberty]

SIRI Q4:

 

http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=894894

 

2014 Revenue Climbs 10% to $4.18 Billion

Net Income Increases 31% to $493 Million in 2014

Record Adjusted EBITDA of $1.47 Billion in 2014, up 26%

2014 Free Cash Flow Reaches Record $1.16 Billion, up 25%

$2.5 Billion of Stock Repurchased in 2014

 

FOURTH QUARTER 2014 HIGHLIGHTS

 

Strong fourth quarter net subscriber gains. SiriusXM recorded 576,689 net new subscribers in the fourth quarter, marking the largest fourth-quarter increase since 2007. Self-pay net subscriber additions were 508,032 in the fourth quarter of 2014 compared to 411,484 in the fourth quarter of 2013.

Record high fourth quarter adjusted EBITDA. Adjusted EBITDA of $381 million in the fourth quarter of 2014 was the highest quarterly amount in the company's history, an increase of 17% over the fourth quarter 2013.

Record free cash flow per diluted share. Free cash flow reached a fourth quarter record of $331 million, while free cash flow per diluted share reached an all-time high of 5.9 cents in the fourth quarter of 2014, up 20% from the fourth quarter of 2013.

FULL-YEAR 2014 HIGHLIGHTS

 

Full-year subscriber gains exceed targets. SiriusXM reported 2014 total and self-pay net subscriber additions, respectively, of 1,751,777 and 1,440,821, each ahead of the company's original full-year guidance of 1,250,000. The company ended 2014 with 27.3 million total paying subscribers and 22.5 million self-pay subscribers, each up 7% from the end of 2013.

Share buybacks reach $2.5 billion in 2014. The company returned $2.5 billion to stockholders by repurchasing 739 million shares in 2014. As of year-end, approximately $1.7 billion remained under the company's existing $6 billion share repurchase authorization.

Record-high adjusted EBITDA and margin. Adjusted EBITDA grew 26% to a record $1.47 billion in 2014 from $1.17 billion in 2013. Adjusted EBITDA margin grew approximately 440 basis points to a record high 35.0%.

Rapid expansion of free cash flow. SiriusXM reported $1.16 billion of free cash flow in 2014, up 25% from $927 million in 2013. The company reported 19.7 cents of free cash flow per diluted share in 2014, up 36% from 14.5 cents per diluted share in 2013.

[ItsAValueTrap]

So the American Sirius XM is hitting 52wk highs as XSR.TO the Canadian Sirius XM is hitting 52wk lows.  Might be interesting to look at the Canadian version.

 

Notable difference:

- Canadian regulators are really weird, which is why XSR.TO exists in the first place.  I don't think XSR.TO can repurchase shares because then the American company would own too much, and foreigners aren't allowed to Canadian media companies.

- If XSR makes more money, the regulators could make them pay more money to support Canadian Content.  (Again.)

[Liberty]

SIRI increasing stake in Sirius Canda on the cheap:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2016/SiriusXM-Enters-into-Agreement-to-Back-Sirius-XM-Canadas-Going-Private-Transaction/default.aspx

[cleonard12]

SIRI increasing stake in Sirius Canda on the cheap:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2016/SiriusXM-Enters-into-Agreement-to-Back-Sirius-XM-Canadas-Going-Private-Transaction/default.aspx

 

I guess since SIRI won't have majority voting control they opted to not pay a control premium? Feels like a "take under"

 

 

[rogermunibond]

Any discussion among the Sirius CCs about loss from mobile/podcasting?  I see how the new subs kind of correlate with auto sales (new and certified used) but as a former Sirius sub I've found that aside from live sports almost all of the content from Sirius can be replaced through a smartphone and podcasts (generally free or ad supported).

[Liberty]

http://www.wsj.com/articles/liberty-media-ceo-greg-maffei-floated-roughly-15-a-share-offer-for-pandora-media-1469117183

 

In recent months, Mr. Maffei floated an offer to internet radio company Pandora Media Inc. for roughly $15 a share, several dollars more than where shares were trading at the time, people familiar with the matter said. That would have valued the company at more than $3.4 billion. [...] Pandora would instantly give Sirius scale in streaming, with 80 million listeners who mostly tune in on their mobile phones. But Pandora, which generates revenue largely from advertising, has an entirely different business model and much higher content costs than Sirius XM.

[Liberty]

Q2 results:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2016/SiriusXM-Reports-Second-Quarter-2016-Results/default.aspx

 

- Second Quarter Revenue Climbs 10% to $1.2 Billion, a Quarterly Record

- Net Income Rises 68% to $173 Million and Adjusted EBITDA Grows 13% to $468 Million in the Second Quarter

- Operating Cash Flow Totals $432 Million and Free Cash Flow Reaches Quarterly High of $395 Million

- Company Increases 2016 Subscriber, Revenue, Adjusted EBITDA, and Free Cash Flow Guidance

[muscleman]

Q2 results:

 

http://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2016/SiriusXM-Reports-Second-Quarter-2016-Results/default.aspx

 

- Second Quarter Revenue Climbs 10% to $1.2 Billion, a Quarterly Record

- Net Income Rises 68% to $173 Million and Adjusted EBITDA Grows 13% to $468 Million in the Second Quarter

- Operating Cash Flow Totals $432 Million and Free Cash Flow Reaches Quarterly High of $395 Million

- Company Increases 2016 Subscriber, Revenue, Adjusted EBITDA, and Free Cash Flow Guidance

 

 

EV/EBITDA about 15. Seems way too expensive to me. What do you think?

Regarding its moat, do you think it is so hard to lease some bandwidth from launched satellite to provide a similar service? I find it weird that DISH or DirectTV is not doing this.

On the other hand, P/FCF of 13 seems reasonable.