Sirius XM Earnings: Soft Pipeline Hurts Net Adds but Pandora Ad Revenue Better Than Expected

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 posted an in line start to a challenging 2023, as first-quarter revenue and EBITDA met FactSet consensus projections. The SiriusXM service lost 384,000 self-pay customers in the quarter, as expected since management warned last year that the pipeline in the second half of 2022 was weak. Ad revenue at Pandora held up better than expected as podcasting is still benefiting from tailwinds. Management increased full-year guidance for free cash flow and adjusted EBITDA while maintaining the revenue expectation.

We are maintaining our $7.50 fair value estimate.

Consolidated revenue fell 2% year over year to $2.4 billion as both subscription and advertising revenue declined slightly. Total company adjusted EBITDA margin dropped to 37.2% from 40.1% as cost-cutting efforts were more than offset by lower revenue and 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 fell by 2% to $1.7 billion due to the drop in subscriber revenue. Monthly average revenue per user dropped by 2% year over year to $15.29. Churn remained flat at 1.6% despite the net add loss, implying the issue was due to the weak pipeline. Total vehicle trials improved by 7% sequentially with a 3% rebound in new vehicles and 11% in used. This should help gross adds rebound in the second half. Gross margin for the segment declined slightly to 61% versus 62% a year ago due to the higher royalty rate.

Pandora and off-platform revenue dropped 1% to $462 million, as ad revenue fell slightly by 1% to $334 million despite the weak ad market. Ad revenue per thousand hours at Pandora decreased to $85 from $90 a year ago, the fourth straight quarterly decline. Gross margin for the segment dropped to 24% from 29% due to higher royalties.