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Sirius XM Posts Decent 2022 Start Despite Sub Losses

We are maintaining our narrow moat and our fair value estimate.

Sirius XM SIRI posted a slightly stronger-than-expected start to a challenging 2022 as revenue exceeded and EBITDA met FactSet consensus expectations. The SiriusXM service lost 25,000 self-pay customers in the quarter, in line with the weak annual guidance of only 500,000 net additions, which management reiterated. The net loss was, as expected, due to the constrained auto inventory in the U.S. in the second half of 2021 as churn remained steady at 1.6%. Management continues to expect that most of the net adds for the year will occur in the second half and has seen some improvement in the paid subscriber funnel. We are maintaining our narrow moat and our $8.25 fair value estimate.

Consolidated revenue improved 6% year over year to $2.2 billion, with both of the firm’s segments growing by 6%. Total company adjusted EBITDA margin fell to 40.1% from 42.2% as programming cost and royalty increases more than offset the revenue gains.

Pandora and off-platform revenue increased to $467 million, as ad revenue improved 8% to $336 million due to strong monetization growth at Pandora and podcasts. Ad revenue per thousand hours at Pandora rose 5% to $89.77. Gross margin for the segment fell to 29% from 31% as the advertising improvement was more than offset by higher royalties and the increased content spending including content. While the focus on podcasts has helped to grow ad revenue by attracting a different demographic, we still believe that the space is highly competitive, and Pandora may be outgunned by cash-flush rivals like Spotify and Apple.

Revenue for the SiriusXM segment expanded by 6% to $1.7 billion, reflecting growth in average revenue per user (ARPU) and advertising. Monthly ARPU rose by 9% year over year to $15.53. Gross margin for the segment improved to 62% in the quarter versus 61% a year ago, as the 8% growth in content costs was outpaced by the revenue improvement and improved leverage on royalties.

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