Why Sirius XM Holdings Inc. Rose 20% in 2017

1/12/18

By Jamal Carnette, MotleyFool

What happened

Last year, Sirius XM Holdings Inc (NASDAQ:SIRI) pleased investors as the satellite radio giant advancing 20%, according to data provided by S&P Global Market Intelligence, as the market reacted favorably to the company's continued subscriber growth.

Turning on a car radio.

IMAGE SOURCE: GETTY IMAGES.

So What

Sirius XM recently announced it ended the year with approximately 27.5 million self-pay subscribers, an increase of 1.56 million from 2016. Sirius XM's management guided for an increase of 1.4 million self-pay subs during 2017 in this heavily watched metric, so the company outperformed internal expectations. Total subscribers, which includes paid promotional subs, now total 32.7 million.

Sirius XM's advance appears mostly supported by the financials. While the company hasn't reported fourth-quarter earnings as of this writing, Sirius XM exceeded expectations throughout the first three fiscal quarters. Through the nine months ended Sept. 30, the company has reported 8.3% higher revenue than in last year's corresponding period while growing earnings per share (EPS) 27%.

Now what

While it's true Sirius faces increased competition from substitutes like streaming-music offeringsfrom Apple, Amazon, and Alphabet, and talk radio is under threat from podcasts, the company still expects strong revenue and subscriber gains. In its third-quarter conference call, management guided for full-year 2017 revenue to grow 7.5% to $5.4 billion before increasing 5.5% to $5.7 billion in 2018. Management expects 1 million self-pay net subscriber adds in 2018.

Sirius XM also has a few catalysts that could lead to even stronger growth: In September, Sirius XM closed on its strategic investment in Pandora Media, which could possibly pay off if the company is able to convert any of Pandora's near-80 million user base to Sirius XM subscribers. Additionally, Sirius XM's smaller connected-vehicle business should benefit from U.S. new car sales, which topped 17 million for the third consecutive year. The company announced it would unveil its next-generation 360L service with an unnamed automaker.

Even if none of these catalysts show up on the income statement in a large way, management has guided for strong growth in its core business and has a recent history of outperforming expectations. Investors will continue to see Sirius XM's stock advance if management can continue to deliver.

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