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Zacks Reiterated The Neutral Rating On SIRIUS XM Radio Inc (NASDAQ:SIRI) Stock: Reasons

Written by on September 19, 2013

Zacks analysts reiterated the Neutral rating on SIRIUS XM Radio Inc (NASDAQ:SIRI)’s stock. For the second quarter of 2013, the company reported strong financial results. This concrete performance was mainly credited to record-high revenues, free cash flow, adjusted EBITDA and net addition of subscribers.

The neutral rating was issued for the company for following reasons. The company is heavily reliant on the growth of the U.S. auto industry. The company carried an estimated 70% market share of the new cars sold. Therefore, even a small variation in auto sales may considerably influence the company’s overall financials. In order to cope with this problem, management has planned to go into the telematics business.

The company has planned to purchase the connected vehicle services unit of Agero Inc. Agero’s connected vehicle unit gives several telematics services, comprising driver alerts, location based content for traffic information, nearby gas stations or restaurants information, vehicle maintenance information and navigation help and voice texting services. The company has healthy telematics joint venture with almost all major car manufacturers.

SIRIUS XM will be allowed to offer both satellite services and wireless services with the planned acquisition of Agero’s telematics business. In Jul 2013, the company started a joint venture with AT&T Inc. (NYSE:T) to propose emergency support, stolen vehicle trailing and roadside help to all connected cars in North America manufactured by Nissan Motors.

On the other hand, the company projected the reduction in the growth rate of its net subscriber in 2013. The lease and sale of sedans with satellite radios is the most significant source of subscribers for the company. Given the fluctuations in the global economy and the company’s heavy reliance on the auto industry, the analyst expect the fluctuations in the company’s financial results in the near term.

Pandora Media Inc. (NYSE:P) is a major rival for the company. Pandora gives a unique algorithm that raises the intrinsic quality of the music, having over 80 million registered users in the U.S.. Moreover, the approaching iTunes online radio service of Apple Inc. (NASDAQ:AAPL) has appeared as a major risk for Sirius XM Radio. Sirius XM Radio Inc (NASDAQ:SIRI) shares were up 0.91% to $3.90 in current session.

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