Sirius XM Earnings: Pandora Advertising Growth Now Justifying Its Acquisition

Key Morningstar Metrics for Sirius XM Holdings

• Fair Value Estimate: $7.50
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Sirius XM Holdings’ Earnings

We are maintaining our $7.50 fair value estimate for Sirius XM Holdings SIRI. While the firm awaits the completion of its deal with Liberty Media, its heavily criticized acquisition of Pandora in 2019 is providing some return. The subscription and advertising sides of its audio broadcasting segment continued to decline during the fourth quarter. But with a bit less uncertainty regarding digital advertising and a continuing shift in listener behavior toward streaming, Pandora posted growth.

While subscription revenue is likely to decline year over year in both segments in 2024, we think the overall advertising part of Sirius will improve with a slowdown in the Sirius XM ad revenue decline and a slight acceleration of growth on the Pandora platform. We do not expect significant long-term changes in Sirius XM’s overall operations and strategy after the firm and Liberty Media complete their deal (expected to happen in the third quarter), which will simplify the firm’s ownership structure.

Total revenue remained flat compared with last year at around $2.3 billion. Sirius XM revenue was flat while Pandora and off-platform revenue increased 2% from last year during the quarter. Continuing weakness in the Sirius XM subscriber count drove 1% and 14% declines in subscription and advertising revenue, respectively. On the Pandora streaming side, the number of listeners declined, but continuing growth in content and overall demand for digital advertising drove year-over-year advertising revenue 1% higher than last year.

The firm’s operating margin declined more than 3 percentage points year over year as its cost of services increased, mainly due to higher subscriber acquisition costs, an increase in sales and marketing, and a slight increase in the cost of content. This led to fourth-quarter adjusted EBITDA of $715 million (31.3% margin), down from last year’s $742 million (32.5% margin). Free cash flow during the quarter declined to $445 million from $529 million in 2022.