Sirius XM Earnings: Results Remain Weak Despite Efforts to Transform Business

Morningstar’s 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

Sales metrics remained weak at Sirius XM Holdings SIRI in the first quarter. The firm lost another 303,000 self-pay SiriusXM subscribers, average revenue per subscriber continued its descent, and the firm again cited a weak advertising market. Total sales were down 4%, while adjusted EBITDA was down 3%.

Why it matters: The company has been pulling numerous levers to recharge its business, including better SiriusXM subscription options and aggressively pursuing advertising opportunities. It undoubtedly takes time to see results, but we still fear the competitive headwinds are too great.

• The firm has introduced new SiriusXM plans and price points and has attractive exclusive content. However, we still think prices are generally too high relative to value, compared with music streaming platforms. We expect a stemming of subscriber losses to coincide with offsetting declines in average revenue per subscriber.
• We think advertising can grow meaningfully, considering the strength of the firm’s podcasts and its ability to monetize creators through various media. But while the firm said podcast ad revenue was up 33% year over year, total ad revenue declined 2% as the number of Pandora users continued to fall.

The bottom line: We maintain our $30 fair value estimate. The firm lacks a moat, in our view, and we don’t think the business can grow, but it still generates sizable free cash flow—some of which gets returned to shareholders—and it has a clear runway to expanding free cash as investment ebbs.

• Sirius generated only $56 million in free cash flow during the first quarter, but it reiterated its full-year expectation for over $1.1 billion. The first quarter is often seasonally weaker, and the timing of payments and capital spending affected this result.
• The firm is on the back half of a recent satellite upgrade cycle that requires less spending each year and should result in $200 million-$300 million in incremental cash flow by 2027.