In the previous project assigned to me, I completed a SWOT analysis of Sirius XM Radio where it was noted that the Sirius XM is firmly at the top of its industry. For the purposes of this project, I went through the financial statements of Sirius XM as well as computed several key financial ratios to indicate Sirius XM’s profitability, growth, performance, and efficiency amongst other things. I then compared these ratios to the industry averages as well as with Sirius XM’s top competitors. After completing this close analysis, I found that although Sirius XM is enjoying incredible growth and a strong place in the market, there are still several flags that an investor should still note.
The very first fact that I noticed about Sirius XM’s radios financial statements was its incredibly large revenue. When compared to its competitors, there is essentially no competition, with Sirius XM posting revenues of over $3 billion for each of the past two years. The closest competitor to Sirius in the radio broadcasting market in terms of revenue was Cumulus Media, which had posted revenues just over $1 billion in 2012 and $550 million in 2011. Sirius XM has also shown consistent growth of its revenue since the merger in 2008.
Over the past 3 years Sirius XM has seen its revenue grow by 14%, 7%, and 13%, which can is a significant amount due to the fact that Sirius XM’s revenues are in the billions. In addition to the growth in revenue, Sirius XM has seen a consistent growth in net income over the years as well. One issue with these facts that I quickly noticed upon analyzing the financials of Sirius XM is that Sirius XM relies heavily on subscribers to post its revenue. The subscription revenue accounts for over 85% of Sirius XM’s total revenues.
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As stated in the previous analysis of Sirius XM, it relies heavily on the auto industry for its subscribers, with new cars or leases usually coming with a pre-paid membership to Sirius XM radio. Sirius must give a share of its subscription revenue to certain auto manufacturers, which they book as an expense instead of deducting it from its revenues. This share accounts for roughly 18-20% of its subscription revenues and about 15-16% of its total revenues. Another issue that stuck out to me was the high costs that Sirius XM incurred.
Sirius XM has a low retention rate when it comes to subscribers so its sales and marketing costs (over $200M) , as well as its subscriber acquisitions costs (over $400M) are extremely high due to the fact that it is constantly marketing for new subscribers. This greatly affects the net income of the company. This flaw was not reflected in the 2012 income statement because Sirius XM received a tax benefit of almost $3 billion as a result of previous years of operating losses. This tax benefit greatly skewed some of the financial ratios of Sirius XM because it was a one-time tax benefit that will not happen again, and net income will surely decrease in 2013. Despite these facts, Sirius XM is still a profitable company that shows no signs of being in financial danger. When compared to competitors such as Cumulus Media, and Dial Global Inc., Sirius XM boasts a higher operating (26%) and gross margin percentage (64%), with both percentages consistently growing as well.
This shows that although Sirius is posting huge revenues with high costs, it is still able to maintain consistent growth, especially when compared to its competitors. It should however be noted that if one were to take into account the revenue share that Sirius XM records as an expense, the gross margin percentage would decrease by about 6%. Another ratio that I calculated that I found to be equally important was Sirius XM’s debt to equity ratio, which has been significantly dropping. It went from 15.85 in 2010 to 0.61 in 2012, which means that Sirius XM is no longer heavily relying on debt to finance its activities. This is a clear indicator that Sirius XM will have a higher return on assets, which has also been steadily improving over the years, than its competitors. Sirius XM also proves that it can, for the most part, meet its short-term obligations by boasting a current ratio of 0.79.
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Abstract In this report, we calculate and compare the financial performance between Daimler Group and BMW Group in two financial years 2010-2011. The objective is to analyse the financial performance of both groups and identify our company’s position, thus suggesting the potential areas for improvement for our company. I) Introduction In this report, we analyse and compare the financial ...
Sirius XM’s current ratio is relatively low because of its strong operating cash flow (over 800M).
Just like the debt to equity ratio, this low current ratio can also mean a higher return on assets for Sirius XM. It should however be noted that, when I calculated the quick ratio, I took into account the quick ratio with accounts receivable (0.78) and without accounts receivable (0.32).
One glaring issue that I found in the notes to the financial statements of Sirius XM radio is the fact that Liberty Media owns over 50% of Sirius XM radio. Because of this fact, Liberty Media owned all of Sirius XM’s Series B Preferred Stock. In September of 2012, Liberty Media converted over 6 million of these shares into over a billion shares of common stock, which no doubt affected Sirius XM’s earnings per share as well as price to earnings ratio. It should also be noted that in January 2013, Liberty Media converted the rest of its Series B Preferred Stock into common stock as well, which will further affect earnings per share.
Overall, Sirius XM is a profitable company, but I am unsure of how much longer Sirius XM will be able to sustain such profitability simply because of its reliance on the auto industry and new customers. Sirius XM’s low retention rate shows that there is no loyalty among its customers, which to me means that on any given day it can suffer serious losses.
