Farallon Capital sold its position in SiriusXM Holdings

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Farallon Capital and SiriusXM Holdings

Farallon Capital initiated new positions in Covidien (COV), Hillshire Brands (HSH), and Allergan (AGN). The fund sold its positions in Time Warner Cable (TWC), Dollar General (DG), and SiriusXM Holdings (SIRI). The fund added to its positions in Safeway (SWY) and Coca-Cola Enterprises (CCE), while it lowered its stake in Charter Communications (CHTR) and eBay (EBAY).

Farallon sold its position in SiriusXM Holdings (XM), which accounted for 1.33% of Farallon’s 1Q portfolio.

Company profile

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SiriusXM broadcasts music, sports, entertainment, comedy, talk, news, traffic, weather channels, and infotainment services. It’s available in the U.S. on a subscription fee basis through its two proprietary satellite radio systems. Subscribers can also receive music and other channels, and features like SiriusXM On Demand and MySXM, over the Internet. Consumers can also receive SiriusXM through mobile device applications. The company holds a minority interest in Canada with more than two million subscribers.

SiriusXM’s primary source of revenue is subscription fees. Most of its customers subscribe on an annual, semi-annual, quarterly, or monthly basis. The company also generates 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 like weather, traffic, data, and Backseat TV services.

Liberty Media abandoned bid for SiriusXM in March

In March, Liberty Media (LMCA), which owns a 53% majority stake in SiriusXM, pulled out of its bid to make Sirius a 100%-owned subsidiary. Liberty said in August that its ownership in SiriusXM increased to approximately 56% due to the company’s share repurchases.

Flat earnings with 10% revenue growth

SiriusXM reported a revenue increase of 10% to a record of $1.1 billion in 3Q14. Net income was $136 million, or $0.02 per diluted share, in 3Q14, an increase of 117% from $63 million, or $0.01 per diluted share, in 3Q13.

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Adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) as a percentage of revenue reached a new record high and climbed approximately 530 basis points, from 30.7% in 3Q13 to 36% in 3Q14. This is the highest EBITDA in the company’s history. Free cash flow per diluted share climbed to 4.5% in 3Q14 from 3.9% in 3Q13.

Strong subscriber growth

Net subscriber additions in the 3Q14 were 432,817, bringing total subscribers up nearly 5% to 26.7 million. Self-pay net subscriber additions were up nearly 7% to 22 million. Total trials underway at the end of the third quarter of 2014 were approximately 7.4 million, the largest in SiriusXM’s history, up from approximately 6.9 million at the end of the third quarter of 2013. Subscriber acquisition costs per installation fell 22% from $45 in 3Q13 to $35 in 3Q14.

Connected vehicle business sees increasing competition

The company said on its earnings call that its new car business certainly benefited from a healthy rate of auto sales, which were up 7% to 16.75 million in 3Q14. Year-to-date (or YTD) vehicle sales were up 5% versus last year. Vehicle penetration was nearly 71.5% of new car sales, up about 2.8 points versus last year’s second quarter.

SiriusXM said it had its strongest quarter ever for new car trial starts at more than 2.8 million. Used car trial starts set a new record by exceeding 1.3 million. Total trial starts of 4.1 million in the third quarter were the highest in the history of the company.

Total conversions increased nearly 13% year-over-year and also set a record high for a single quarter. The company’s churn rate was 1.9% in the third quarter, up slightly from last year’s rate of 1.8%. Management added that vehicle related turnover was the primary driver of churn increase.

The connected car space sees competition from entrants such as Apple (or AAPL) with its CarPlay, Microsoft (or MSFT), Google (GOOG), and Blackberry (BBRY) with its QNX platform.

In the next part of the series, we’ll review Farallon Capital’s position in Safeway.

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