Sirius XM Ends Strong 2021 on a Positive Note

Sirius XM SIRI posted a slightly stronger than expected end to 2021 as revenue met and EBITDA exceeded FactSet consensus expectations. The SiriusXM service added 55,000 self-pay customers in the fourth quarter, in line with weak guidance. Even with the anemic end to the year, the service added a very impressive 1.152 million new subscribers in 2021 despite the ongoing impact of the pandemic on commuting and travel. Management provided new customer guidance of only 500,000 for 2022, which would be the weakest net add year since Sirius and XM merged in 2010. The modest guidance is driven by the expected large drop in paid promotional subscribers due to the constrained auto inventory in the U.S. We think the number is back-half weighted with an expectation of a slowly improving inventory situation.

We are maintaining our narrow moat and raising our fair value estimate to $8 from $7.50 to account for stronger growth post 2022 and slightly faster margin expansion due to price increases.

Consolidated revenue improved 4% year over year to $2.3 billion, with both of the firm’s segments growing by 4%. Total company adjusted EBITDA margin fell to 29.4% from 30.1% as programming cost and royalty increases more than offset the revenue gains.

Pandora revenue increased to $575 million, as ad revenue improved 4% to $442 million due to the rebound versus last year’s pandemic-influenced quarter. As a result, ad RPM rose 4% to $117.36. Gross margin for Pandora fell to 38% from 42% as the advertising rebound was more than offset by higher royalties and the ongoing shift to more podcasts. While the increased focus on podcasts could help boost ad RPMs by attracting a different demographic, we think that the space is highly competitive, and Pandora may be outgunned by rivals with deeper pockets like Spotify and Apple.

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