Sirius XM Earnings: Improved Pipeline Should Drive Revenue Growth

Sirius XM Stock at a Glance

• Fair Value Estimate: $7.50
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow

Sirius XM Earnings Update

Sirius XM SIRI continues to perform solidly despite a challenging backdrop, as second-quarter revenue and earnings met FactSet consensus projections.

The SiriusXM platform shed 132,000 self-pay customers in the quarter due to the weak pipeline in the second half of 2022, but the performance improved sequentially versus the loss of 384,000 subscribers in the first quarter. Ad revenue at Pandora continues to hold up better than expected due to strength in off-platform advertising. Management increased full-year guidance for free cash flow for the second quarter in a row while maintaining its revenue and earnings expectations.

We are maintaining our $7.50 fair value estimate on Sirius XM stock.

Consolidated revenue of $2.5 billion was flat year over year, as were both subscription and advertising revenue. Total company adjusted margin improved to 31.2% from 30.1% as cost-cutting efforts more than offset a higher royalty rate due to the expiration of pre-1972 music rights agreements and a 9% inflator for webcasting performance rights from the royalty board.

Revenue for the SiriusXM segment was flat at $1.7 billion. Monthly average revenue per user improved slightly to $15.66 from $15.62. Churn remained at 1.5% despite the net add loss, implying the issue was due to the weak pipeline. The trial funnel increased slightly to 7.5 million at the end of the quarter, up from 7.2 million at the end of March and 7.3 million a year ago. This should help gross adds rebound in the second half. Gross margin for the segment held at 61% versus a year ago as the higher royalty rate was offset by lower content and customer service costs.