Radio Buyback: Sirius-ly

04/07/2014 7:00 am EST


David Fried

Editor, The Buyback Letter

Our Buyback Premium Portfolio is beating the S&P 500 by more than 98% since its inception in 2000; here’s a look at one of the latest additions to the portfolio, says David Fried, editor of The Buyback Letter.

Satellite radio giant Sirius XM Holdings Inc. (SIRI) is the world’s largest pay-radio service (a market leader in car radio service), with a market share of about 70% of new cars in the US and 25.6 million subscribers at the end of 2013.

In the last year, Sirius has made deals with Toyota and Honda, and extended its deal with Nissan. Its forecast is for 11 million cars to be fitted with satellite radio this year, compared to 10.7 million last year.

Some 60 million cars are currently fitted with factory-installed radio satellite services—a figure expected to rise to 100 million cars in the next five years.

More than new cars, though, the company is broadening its customer base and targeting less-affluent consumers in the used car market, and expects sales in this niche to eventually exceed the new car market. It has also been diversifying out of the music streaming service into what is called “connected vehicles services.”

In late 2013, the company acquired a unit of Agero, and it will be renamed Sirius XM Connected Vehicle Services, to offer compelling services including vehicle maintenance information, location-based traffic information, help with navigation, and voice texting, for example.

Sirius has many relationships with various automakers, and the company can leverage these to grow the Agero business.

There are some 60 million cars with Sirius's satellite receivers installed, and although most of these cars do not have Sirius XM subscriptions, the proposed security and safety solutions are additional ways to monetize these cars using their Sirius receivers.

In 2013, SIRI had a 12% year-over-year increase in revenues to $3.8 billion. Operating income was a record $1.04 billion; net income was $377 million, with an EPS of $0.06 per share.

Share buybacks were $1.76 billion during 2013, with an authorization for $2.2 billion that's still to be executed. SIRI has reduced shares outstanding by 6.45% in the past 12 months.

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