Sirius XM Radio Inc (NASDAQ:SIRI) is one of the most widely followed stocks in the market. The company made an incredible recovery since its dip to 10 cents in 2009. Currently, it is trading around $3.50, with a year-to-date return of about 20%. The recent Sirius XM Radio Inc (NASDAQ:SIRI) jump was triggered by a combination of speculations and optimistic outlook for the company amid rising subscriptions. The rally came even while it faces the threat of Google Inc (NASDAQ:GOOG) entering the market. Apple Inc. (NASDAQ:AAPL) is another probable big competitor, as well.
While Sirius XM Radio Inc (NASDAQ:SIRI) continued to remain bullish from the start of the year, there are growing concerns for correction anytime soon. However, since the major fall in 2008, Sirius rebounded and remained generally upbeat for the last four years. The growing subscriber base was a big plus, fueling the rally. As long as the company manages its finances well and continues to capture more subscribers, I think Sirius XM Radio Inc (NASDAQ:SIRI) will keep outperforming. The recent earnings report supports this point.
First Quarter 2013 Financial Highlights
On April 30, Sirius reported the first quarter 2013 results. One of the major highlights of the report is the addition of 453,000 new subscribers. This raised the subscriber level of Sirius XM Radio Inc (NASDAQ:SIRI) to a record number of 24.4 million, up 9% compared to the prior year.
Another remarkable highlight is the 12% growth in revenue at $897 million. Net income also jumped 15% from $108 million during the first quarter of 2012 to $124 million. Similarly, earnings before income tax also jumped to a record $262 million, up 26% over last year at $208 million. However, the basic and diluted net income per common share remained unchanged at $0.02 per share.
Sirius XM Radio Inc (NASDAQ:SIRI) achieved a major feat during the quarter when its free cash flow reached $142 million. This is a stunning 847% jump from the $15 million free cash flow during the same period in 2012. From this perspective, it is the best ever first quarter in the history of Sirius. Consequently, the company raised its free cash flow guidance to $915 million, up 29% over last year.
Moving forward, the company aims to capture 1.6 million more new self-pay net subscribers, and 1.4 million total net subscribers. It also strives to earn at least $1.1 billion adjusted EBITDA. While these projections are achievable given the present growth rate, competitors may build obstacles along the path.
Sirius vs. Pandora
In the financial aspect, Pandora Media Inc (NYSE:P) showed weaker financials compared to Sirius XM. While Sirius XM reported earnings growth, Pandora Media Inc (NYSE:P) posted net loss of $14.5 million. The net loss widened from the $8.18 million net loss it incurred during the same period in 2012.
However, its total revenue made a tremendous 54% jump from $81.326 million to $125.089 million. The net loss was due to the rising costs and expenses on content acquisition, product development, and sales and marketing. These are somehow investments that can further strengthen the company in the future.
With regards to share performances, Pandora Media Inc (NYSE:P) shares also rallied during the same week when Sirius XM rallied. Year-to-date, Pandora made a higher leap at an astounding 72.6% from $9.49 to $16.38 on May 20. Truly, Pandora Media Inc (NYSE:P) showed its overwhelming strength over Sirius as a company with high potential.
However, Pandora is not a direct competitor of Sirius XM. They operate very differently. Sirius is an ads-free internet music that requires monthly subscription. Pandora Media Inc (NYSE:P), on the other hand, is an ads-based internet channel that broadcast music with advertisements. Unlike Sirius that earns from subscriptions, majority of Pandora’s revenue comes from ads. Nonetheless, both products compete for online music entertainment, making Sirius XM and Pandora competitors to each other.
Sirius has already secured partnership with several car audio products. This includes popular brands like Alpine, JVC, Kenwood, Eclipse, Clarion, and Pioneer, among others. It has partnered with several popular and automotive manufacturers, as well. Among them are Ford, BMW, Audi, Mercedes Benz, Porsche, Volvo, Volkswagen, Nissan, Lexus, and Toyota. These partnerships guarantee steady streams of income for the company.
Potential Threats: Google and Apple
Pandora is just one piece of the competition landscape. Sirius could be in serious trouble against the tech giants Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL). Google Inc (NASDAQ:GOOG) announced the launch of Google Play Music All Access on May 15. Just like Sirius, this is a subscription-base service that provides on-demand ads-free internet live music streaming.
There are two major concerns for Sirius regarding the Google Inc (NASDAQ:GOOG) All Access service. First, the monthly subscription rate of Google is notably lower than the rates of Sirius. Google All Access is offered for only $9.99 per month with one month free trial.
The monthly subscription rates of Sirius, on the other hand, start from $14.49 to $17.99 per month. The annual plan is offered at $199 per year. However, Sirius has a lot of perks to offer. This includes access to premium programs like NBA games, NHL games, PGA tours, and Oprah Radio, to name a few. It further offers exclusive entertainment like Blue Collar Radio, and Comedy Central Radio. So, the specific target market segments are different.
Another major concern is the huge user base of Google Inc (NASDAQ:GOOG), which Google can quickly tap on for its All Access service. This can quickly grab a significant piece of the market share. While many see Spotify to be largely affected, Sirius can be affected as well.
Apple Inc. (NASDAQ:AAPL) is set to launch another similar service. Up to now, no one has an idea on the business model of Apple Inc. (NASDAQ:AAPL)’s internet music. It might be something similar to what is offered by Pandora. But one thing for sure, it will stir the online music entertainment market.
Final Notes
Despite the growing threats from competitors, Sirius XM remains upbeat. Its growing subscriber base is the major catalyst for the rally. While the competition in online radio becomes tough, Sirius XM distinguished itself as a satellite radio. However, the real threat could be an agreement between telecommunication service providers and online music providers.
Nur Tarkak has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Nur is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Rising Competition Cannot Stop This Company originally appeared on Fool.com is written by Nur Tarkak.
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