SiriusXM (SIRI) seems to be starting off 2019 with a bang. Early this week, the company announced a deal with Visa relating to its connected vehicle platform and followed up that positive news with an announcement about beating 2018 guidance. The company will host a conference call on January 30th to go over the Q4 numbers. On top of that, the company expects to close on its acquisition of Pandora (P) in Q1 of 2019.
The announcement on a deal with Visa (NYSE:V) is quite compelling in my opinion. SiriusXM will enable Visa account holders to pay for coffee, gas, parking, movie tickets and more in-vehicle. The companies seek to enhance the way customers spend their time in-vehicle by offering the SiriusXM e-wallet to manufacturers who deploy SiriusXM’s connected vehicle services. The system will be fully integrated, making it a likely popular solution when compared to standalone devices that sit on the dashboard. Most key car manufacturers are already integrating SiriusXM connected vehicle capabilities or rolling the services out in the near future.
Through the SiriusXM e-wallet, drivers and their passengers can complete and make purchases for everyday tasks on-the-go. Examples are the ability to shop and pay for coffee, find and pre-pay for gas, locate and pay for parking, purchase movie tickets, and seamlessly pay tolls. Users will activate and authenticate payment with their Visa account using biometric authentication, like voice and touchscreen commands, to eliminate driver distractions during the transaction.
They key in this relationship is that it combines the platform and partnerships of SiriusXM in the connected vehicle space with the payment processing capabilities and leverage Visa possess with retailers. Visa is establishing virtual payment relationships through its already wide-ranging network of retailers and providing secure authentication capabilities for added security, while SiriusXM is developing the next-generation protocols needed to establish real-time connectivity and in-vehicle interfaces with a broad variety of personalized content and data aggregated from a network of platforms. This suite of services will be showcased to automobile manufacturers during 2019.
This business model can add a compelling revenue stream for SiriusXM that is virtually invisible to the consumer. SiriusXM has not provided details on what its share of the pie will be, but it would likely be similar to fees that a typical retailer pays to Visa for accepting it as a form of payment. With millions of cars on the road that will be connected, the service has potential to be quite popular. This is especially true when you consider that it is an in the dashboard solution.
SiriusXM announced that its total paid subscriber base has reached a record high of 34 million. This was accomplished via the addition of 1.4 million self-pay subscribers. The company exceeded its subscriber guidance by nearly 40%, a home run by any measure.
Another highlight of the Q4 activity was that the company repurchased approximately $646 million of its common stock. This was the largest amount of capital allocated to open market repurchases in a single quarter since the share buyback program commenced in early 2013. Including dividends, SiriusXM returned approximately $1.5 billion of capital to its stockholders during 2018.
For 2019, the company is already establishing guidance. That guidance includes the following:
- SiriusXM self-pay net additions approaching 1 million,
- Total revenue of approximately $6.1 billion,
- Adjusted EBITDA of approximately $2.3 billion,
- Free cash flow of approximately $1.6 billion.
The company’s guidance does not give effect to the expected acquisition of Pandora Media (NYSE:P) in the first quarter. Historically, SiriusXM sets the guidance bar a bit low and then adjusts it upward as the year progresses.
When you consider that the 2019 guidance does not include Pandora, the numbers get a bit more compelling. In my opinion the company may update guidance to include Pandora on its Q2 call in early July.
If you thought that SiriusXM was a company that would rest on its laurels or coast a bit with a new acquisition, you are mistaken. SiriusXM has demonstrated year after year that it is keen on delivering shareholder value, keen on returning capital to shareholders, and keen on developing cutting edge deals and technology. This is a company that has performed well regardless of what the economy is doing, and has added the types of relationships that can ensure multiple revenue streams and methods to touch the consumer.
With the size of the recent share buyback, the Liberty Media (LSXMA) (LSXMK) position in the company is reaching levels that almost necessitate a move. Liberty will likely be closing in on 75% ownership within the next 6 months or so. With Liberty carrying interests in SiriusXM, Pandora (through SiriusXM), Live Nation (LYV), and possibly iHeart Media (OTCPK:IHRTQ), there is a compelling synergy that is very possible in the not too distant future. In point of fact, some form of mega-deal could be in the cards for 2019 or 2020.
Years ago, there was a saying about satellite radio. “Content Is King” was the mantra. The statement is very true, but leverage is also a king. SiriusXM has leverage on its own, but a SiriusXM that is combined with a Live Nation, Pandora, and iHeart gives the company massive leverage that could be quite compelling to some of the massive players in the tech and communications space.
SiriusXM is, in my opinion, a very stable equity with a history of building value and a possible compelling M&A story. This stock is a buy in my book. Stay Tuned!
Disclosure: I am/we are long SIRI, LSXMA, LSXMK, P, LYV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.