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Sirius XM (SIRI) Up 1.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Sirius XM (SIRI). Shares have added about 1.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sirius XM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sirius XM Holdings Q2 Earnings In Line, Revenues Fall

Sirius XM Holdings reported second-quarter 2020 earnings of 5 cents per share that matched the Zacks Consensus Estimate but declined 16.7% year over year.

Total revenues on a reported basis declined 5.2% year over year to $1.87 billion attributed to lower advertisement revenues, partially offset by growth in subscriber revenues. The figure missed the Zacks Consensus Estimate by 0.4%. On a pro-forma basis, revenues declined 5.2% year over year.

Subscriber revenues (84.2% of total revenues) rose 2.7% from the year-ago quarter to $1.57 billion. Meanwhile, advertisement revenues (12.6%) declined 34.1% year over year to $236 million.

Equipment revenues (1.3% of total revenues) decreased 39% year over year to $25 million. Other revenues (1.9% of total revenues) decreased 14.6% from the year-ago quarter to $35 million.

SiriusXM Standalone Details

Sirius XM segment pro-forma revenues were $1.54 billion, up 0.1% year over year. While subscriber base declined 0.6%, the company witnessed growth of 0.9% in ARPU, which was $13.96. 

Self-pay subscribers increased 3.3% year over year to 30.3 million. The company added 264K net self-pay subscribers in the reported quarter.

However, Sirius XM lost 516K net subscribers. The company lost paid promotional subscribers due to a decline in shipments from automakers offering paid promotional subscriptions.

Total subscribers were 34.3 million as of Jun 30, 2020, less than 34.345 million as of Jun 30, 2019.

Sirius XM traffic users grew 3% year over year to 9.414 million. However, Canada subscribers decreased 4% to 2.607 million.

Additionally, average self-pay monthly churn rate was 1.6% in the second quarter, down 1% year over year.

Subscriber revenues rose 3.6% year over year to $1.45 billion. However, advertising revenues were $25 million, down 51.9% year over year. Moreover, Equipment revenues declined 39% year over year to $25 million. Other revenues declined 14% year over year to $37 million.

Pandora Details

Pandora’s pro-forma revenues decreased 23.8% year over year to $336 million owing to 31% decline in advertising revenues, which totaled $211 million. Subscriber revenues declined 7.4% year over year to $125 million.

Weakness in ad revenues was due to decrease in second-quarter monetization to $55.23 per thousand hours, down 31.1% year over year.

Management stated that numerous categories of advertisers cancelled or paused orders during the second quarter in response to the coronavirus pandemic.

However, ARPU increased 2.6% year over year to $6.7.

Monthly active users (MAUs) were 59.6 million at the end of the reported quarter, down from 64.9 million in the year-ago quarter. Ad-supported listener hours declined 5.7% year over year to 3.29 billion.

Pandora added 41K self-pay subscribers and exited the second quarter with nearly 6.256 million self-pay subscribers. However, it lost 655K paid promotional subscribers over the year.

Operating Details

In the second quarter, total operating expenses decreased 5.1% year over year to $1.45 billion.

Revenue share and royalty costs declined 2.2% year over year to $587 million. Programming & content costs were $110 million, down 5.2%. Cost of equipment declined 33.3% year over year to $4 million.

Customer service & billing costs increased 1.7% to $122 million. Satellite and transmission costs increased 7.5% year over year to $43 million.

Subscriber acquisition costs declined 53.8% year over year to $48 million. Engineering, design and development expenses decreased 17.6% from the year-ago quarter to $61 million. Sales and marketing expenses declined 6.5% to $217 million. General and administrative costs declined 0.8% to $119 million.

Adjusted EBITDA declined 0.5% year over year to $615 million, primarily due to decline in revenues across the business and reductions in subscriber acquisition costs, sales and marketing expenses and general and administrative costs.

Balance Sheet & Cash Flow

As of Jun 30, 2020, prior to the redemption of the $500 million aggregate principal amount of outstanding 4.625% Notes and the $1.0 billion aggregate principal amount of outstanding 5.375% Notes on Jul 9, 2020, cash and cash equivalents were $1.77 billion compared with $40 million as of Mar 31, 2020.

Long-term debt remained the same quarter over quarter at $7.847 billion as of Jun 30, 2020.

At quarter-end, Sirius XM’s debt to adjusted EBITDA ratio was 3.0. The company had $1.75 billion available under its revolving credit facility.

Cash flow from operating activities in second-quarter 2020 was $519 million compared with $416 million in first-quarter 2020. Free cash flow was $503 million in the second quarter compared with $348 million in the previous quarter.

Guidance for 2020

Revenues, on a pro-forma basis, are expected to be approximately $7.7 billion for the year. Adjusted EBITDA is expected to be $2.4 billion.

The company anticipates to add almost 500K Sirius XM self-pay net subscribers.

Free cash flow is expected to be around $1.6 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.09% due to these changes.

VGM Scores

At this time, Sirius XM has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sirius XM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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