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Sirius XM
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==Summary== While Sirius XM is no longer just a satellite radio service—following the 2019 purchase of Pandora— the legacy service remains the firm's crown jewel, generating three fourths of the revenue and 85% of gross profits. Due in part to the tight auto supply in the second half of 2021, which is expected to persist through the first half of this year, SiriusXM is projected to have one of its worst years in terms of net customer growth. While the market has punished the stock, Morningstar believes that the service is poised to return to growth in 2023 and beyond. Morningstar's belief is driven in part by Morningstar's projections that the supply issues hitting light-vehicle sales will reverse in the second half of 2022 and the total sales level will return to the prepandemic norms of around 17 million units sold in 2023. The company has also continued to invest in new areas that could expand its reach, with acquisitions in podcasting and digital advertising. Morningstar's new $8.25 fair value estimate is driven by Morningstar's new light-vehicle projections for 2022-26 and higher expectations for growth from 2023-26. '''Key Takeaways''' * Despite the growth of music streaming platforms like Spotify and fewer commuters over the last two years, SiriusXM has not only held on to its customers but also continued to convert trial customers at levels just below prepandemic rates. Morningstar expects the conversion rate will continue to decline, offset by increased penetration at both automakers and used car dealers. * The increased investment in podcasting will not be enough for Pandora to differentiate itself from the larger music services, and Morningstar expects ad-supported listening hours to continue to decline. * Sirius XM's narrow moat is driven by cost advantage derived from the satellite radio service's codified rate for sound recording royalties. This lower rate relatively to music streaming services allows SiriusXM to generate much higher gross margins than peers like Spotify or even its sister service, Pandora.
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