Sirius XM Earnings: Positive Trends Are Outweighed by Smaller Subscriber Base and Pandora Struggles

Key Morningstar Metrics for Sirius XM Holdings

• Fair Value Estimate: $30.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Sirius XM Holdings’ Earnings

Sirius XM Holdings SIRI continues to optimize its SiriusXM strategy—to some benefit—and see strength in podcasting. However, “success” with SiriusXM merely means slowing its long-term decline, and strength in podcasting has been more than offset by weakness at Pandora, which we expect to continue.

Why it matters: SiriusXM still makes up about 75% of total revenue, and we estimate Pandora made up about 16.5% of revenue in the second quarter, so success on the firm’s own platforms remains critical for SiriusXM to stem its sales declines.

• Total sales fell 2% year over year in the second quarter, including a 1.6% decline in the SiriusXM segment. However, the SiriusXM decline was mostly attributable to subscriber losses and lower average revenue per user over the course of the past year. Second-quarter results were better.
• SiriusXM lost 68,000 net subscribers, a 60% improvement of losses in the year-ago period. Average revenue per SiriusXM subscriber was roughly flat after having been down 3% in each of the past four quarters. Price increases and new plan offerings have driven the improvement.

The bottom line: We don’t expect Sirius XM to return to growth over the next five years, but we believe further improvement at SiriusXM, combined with growth in podcast ad revenue, can halt the bleeding, keeping revenue close to flat. We maintain our $30 per share fair value estimate and no-moat rating.

• SiriusXM has suffered greatly from the advent of streaming music services, and it attempted to remedy its far-too-high price point with huge price concessions for consumers who looked to cancel. We think its new pricing tiers and subscription options can stabilize average revenue per user.

Between the lines: Pandora and off-platform revenue declined 2.6% year over year on weakness at Pandora that we don’t anticipate will improve. However, off-platform advertising revenue grew 20%. Strength in podcasts should lead off-platform revenue to become more material to results.