Why Magnetar Financial opens new position in SiriusXM
Magnetar and SiriusXM
Magnetar Financial started new positions in Exterran Holdings Inc. (EXH), Rowan Companies Plc. (RDC), SiriusXM (SIRI), and Yahoo! Inc. (YHOO). Top positions sold were EOG Resources (EOG) and EQT Corp. (EQT).
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Magnetar initiated a brand new position in SiriusXM Holdings (SIRI) which accounts for 2.24% of the fund’s 1Q portfolio.
SiriusXM broadcasts music, sports, entertainment, comedy, talk, news, traffic, and weather channels, as well as infotainment services, in the United States on a subscription fee basis through its two proprietary satellite radio systems. Subscribers can also receive music and other channels, plus features such as SiriusXM On Demand and MySXM, over the Internet, including through applications for mobile devices. It holds a minority interest in Canada which has more than two million subscribers.
Its primary source of revenue is subscription fees, with most of its customers subscribing on an annual, semi-annual, quarterly, or monthly basis. It also derives revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services, such as our weather, traffic, data, and Backseat TV services. The company has agreements with every major automaker to offer satellite radios in their vehicles. Satellite radio services are also offered to customers of certain rental car companies. It also provides connected vehicle applications and services. The segment was further boosted by the acquisition of the connected vehicle business of Agero Inc. last year.
Liberty backs out of deal to fully acquire SiriusXM in March
In March, SiriusXM’s majority owner Liberty Media Corp. (LMCA), which is controlled by media mogul John Malone, backed out of a proposal to buy around 48% of the satellite radio company it doesn’t already own in a deal that could have been worth more than $10 billion. Liberty said “Depending on market conditions, we look forward to further discussions with the SiriusXM Special Committee. We remain enthusiastic owners of 53% of SiriusXM.”
First quarter revenue increases on new subscriber additions
SiriusXM’s 1Q14 earnings were in line with estimates. Revenue was $998 million, up 11% from the 1Q13 revenue of $897 million due to subscriber additions. Earnings per diluted share was flat at $0.02 in both the 1Q14 and 1Q13. Adjusted EBITDA for the 1Q14 reached $335 million, up 28% from $262 million in the 1Q13.
As of March 31, 2014, SiriusXM had 25,826,109 subscribers of which 21,255,297 were self-pay subscribers and 4,570,812 were paid promotional subscribers. Net subscriber additions in the 1Q14 were 266,799.
The company posted profit of $94 million, down from $123.4 million in the year-earlier period due to non-recurring adjustments related to its Liberty Media stock repurchase agreement and purchase price accounting adjustments from the Sirius and XM merger. Churn improved to 1.9% from 2% in the first quarter. The management noted that “car sales through February were flat year-over-year, but with better weather in March sales were up 7% over 2013.”
SiriusXM reiterated its guidance of approximately 1.25 million new subscribers this year and revenue of over $4 billion. It forecast double digit growth in adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) to about $1.38 billion and free cash flow of $1.1 billion.
Why competition is getting ‘Sirius’ in the connected car space?
SiriusXM believes its long term term growth opportunities are significant as “our radios today are only in about 26% of the cars on the road today.” It also expects $100 million of revenue in its connected vehicle business this year.
The satellite radio company’s competitors include Apple (AAPL), Pandora (P), and Spotify. In connected vehicles, Sirius said its major competitors include Verizon Telematics and Sprint. OnStar, a division of General Motors, also offers connected vehicle services in GM vehicles. GM has partnered with AT&T, and said in May that the 2015 Chevrolet Malibu will be the first 4G LTE-equipped GM vehicle, followed by more than 30 other Chevrolet, Buick, GMC, and Cadillac vehicles by the end of the year. The connected car space has also seen entrants such as Apple (AAPL) with its CarPlay, Microsoft (MSFT), Google (GOOG), and Blackberry (BBRY) with its QNX platform.
SiriusXM finalizes share repurchase from Liberty
In October, SiriusXM had agreed to repurchase $500 million of its common stock from Liberty as part of SiriusXM’s share repurchase program. On April 25, 2014, Sirius purchased its final installment of shares, equal to 92,888,561 shares, at a previously established price per share of $3.66, for an aggregate purchase price of $340 million. Sirius said “as of March 31, 2014, $2,108,958 remained available under our stock repurchase program. We expect to fund future repurchases through a combination of cash on hand, cash generated by operations and future borrowings.”