A month has gone by since the last earnings report for Sirius XM (SIRI). Shares have lost about 2.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sirius XM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sirius XM Holdings Q2 Earnings Beat, Revenues Up Y/Y
Sirius XM Holdings reported second-quarter 2019 earnings of 6 cents per share that beat the Zacks Consensus Estimate by a penny and were flat year over year.
Total revenues on a reported basis jumped 38.1% year over year to $1.98 billion and beat the Zacks Consensus Estimate of $1.93 billion.
Subscriber revenues (77.7% of total revenues) increased 17.9% from the year-ago quarter to $1.54 billion. Advertisement (18.1%) surged 661.7% year over year to $358 million. Equipment revenues (2.1% of total revenues) increased 10.8% from the year-ago quarter to $41 million.
However, Music royalty fee and other revenues (2.1% of total revenues) decreased 6.8% from the year-ago quarter to $41 million.
On a pro-forma basis, revenues increased 8.8% year over year, primarily driven by solid contribution from Pandora Media. Pandora’s average revenue per user (ARPU) increased 0.2% year over year to $6.53.
In the reported quarter, Sirius XM’s ARPU increased 4% year over year to $13.83, the highest growth rate recorded in nine years. Notably, ARPU excludes the impact of revenues from Sirius XM’s connected vehicle services.
SiriusXM Standalone Details
Sirius XM segment pro-forma revenues were $1.54 billion, up 7% year over year. The increase was driven by growth in subscriber base and higher ARPU.
Subscriber revenues increased 8% year over year to $1.40 billion. In the second quarter, Sirius XM added 174K net new subscribers. As a result, total number of subscribers was 34.4 million, better than 33.5 million as of Jun 30, 2018.
Sirius XM added 290K net new self-pay subscribers and ended the second quarter with 29.4 million self-pay subscribers, better than 28.2 million as of Jun 30, 2018.
However, the company lost 116K paid promotional subscribers in the reported quarter. Paid promotional subscribers declined 5% year over year to 5 million as of Jun 30, 2019, attributed to a decline in shipments from automakers offering paid promotional subscriptions.
Sirius XM traffic users increased 13% year over year to 9.2 million and Canada subscribers increased 2% to 2.7 million.
Additionally, average self-pay monthly churn rate was 1.7% in second quarter, up 0.1% year over year.
Advertising revenues were $52 million, up 11% year over year. Equipment revenues were also up 11% to $41 million. However, other revenues declined 7% year over year to $43 million.
Pandora’s total number of subscribers at the end of the second quarter was 6.6 million, better than almost 6 million at the end of the year-ago quarter.
Pandora added 64K net new self-pay subscribers and exited the second quarter with more than 6.2 million self-pay subscribers. Pandora’s paid promotional subscribers in the reported quarter were 733K.
Moreover, monthly active users (MAUs) declined 9.1% year over year to almost 65 million. Ad supported listener hours declined 9.6% year over year to 3.5 billion.
Pandora’s pro-forma revenues increased 14.5% year over year to $441 million owing to strong subscriber revenue growth, up 18%. Additionally, advertising revenues increased 13% year over year to $306 million.
Ad revenues were driven by record second-quarter monetization of $80 per thousand hours, up 17% year over year.
The company’s expansion of off-platform efforts and fees generated on AdsWizz is expected to drive revenues.
To bolster its offerings, Sirius XM continues to collaborate with famous media brands from all spheres including comedy, music, news and sports.
For instance, in the reported quarter, Lady Gaga played a once-in-a-lifetime show for Sirius XM subscribers and Pandora listeners in late June, making it the first-ever combined Sirius XM and Pandora event.
Additionally, the company debuted “Netflix Is A Joke Radio," a full-time comedy channel with Netflix and announced plans for a new music channel with SoulCycle.
Moreover, the company launched a jam band channel with Phish and special pop-up channels with Madonna, Cher, Dave Matthews Band and the music of Pavarotti.
Most recently, Sirius XM collaborated with platinum-selling recording artist Drake, which give it a competitive advantage.
In the second quarter, contribution margin was 63%, up from 62% reported in the year-ago quarter.
Revenue share and royalties cost increased 48.5% year over year to $600 million. Customer service & billing cost increased 26.3% to $120 million. Transmission cost was also up 66.7% year over year to $34 million.
Engineering, design and development expenses increased 174.1% from the year-ago quarter to $74 million. Sales and marketing expense increased 95% to $232 million.
However, subscriber acquisition costs declined 13.3% year over year to $104 million.
Adjusted EBITDA increased 22% year over year to $618 million. Adjusted EBITDA margin expanded 330 basis points to 31.2% driven primarily by revenue growth across the combined businesses and cost efficiencies in subscriber acquisition costs and revenue share and royalties.
Balance Sheet & Cash Flow
As of Jun 30, 2019, cash and cash equivalents were $215 million compared with $62 million in the previous quarter. Long-term debt was $7.84 billion compared with $7.80 billion in the prior quarter.
Cash flow from operating activities in second-quarter 2019 was $545 million compared with $396 million in first-quarter 2019. Free cash flow was $474 million in the second quarter compared with $300 million in the previous quarter.
Sirius XM repurchased shares worth $898 million in the reported quarter.
Revenues, on a pro-forma basis, are expected to be approximately $7.8 billion. Adjusted EBITDA is expected to be roughly $2.35 billion. The company anticipates adding almost 1 million Sirius XM self-pay net subscribers.
Free cash flow is expected to be around $1.6 billion. The company expects cost synergies of more than $75 million per year.
The above mentioned guidance includes Pandora’s results.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
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. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. 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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