Sirius XM (SIRI) Down 7.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Sirius XM (NASDAQ:SIRI). Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sirius XM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sirius XM Holdings Q4 Earnings Miss, Revenues Rise Y/Y

Sirius XM Holdings reported fourth-quarter 2019 earnings of 5 cents per share that missed the Zacks Consensus Estimate by 16.7% and declined 16.7% year over year.

Total revenues on a reported basis jumped 37.8% year over year to $2.06 billion and beat the Zacks Consensus Estimate by 1.57%. On a pro-forma basis, revenues increased 6.4% year over year.

The top line was driven by robust subscriber and advertisement revenues. Subscriber revenues (76.1% of total revenues) grew 15.3% from the year-ago quarter to $1.56 billion. Advertisement revenues (19.5%) surged 660.4% year over year to $403 million.

Equipment revenues (2.2% of total revenues) rose 9.5% from the year-ago quarter to $46 million. Other revenues (2.1% of total revenues) increased 10% from the year-ago quarter to $44 million.

Sirius XM Standalone Details

Sirius XM segment pro-forma revenues were $1.59 billion, up 6.5% year over year. The increase was driven by 2.6% growth in subscriber base and 2.9% in ARPU, which was $14.03.

Sirius XM added 355K net subscribers. Self-pay subscribers increased 3.7% year over year to 29.978 million. The company added 341K net self-pay subscribers in the reported quarter. However, the company lost paid promotional subscribers due to a decline in shipments from automakers offering paid promotional subscriptions.

Total subscribers were 34.909 million as of Dec 31, 2019, better than 33.039 million as of Dec 31, 2018.

Sirius XM traffic users grew 8% year over year to 9.344 million and Canada subscribers increased 2% to 2.707 million.

Additionally, average self-pay monthly churn rate was 1.7% in the fourth quarter, down 0.1% year over year.

Subscriber revenues rose 6.4% year over year to $1.44 billion. Advertising revenues were $56 million, up 5.7% year over year.

Moreover, Equipment revenues were up 9.5% to $46 million. Other revenues improved 9.5% year over year to $46 million.

Pandora Details

Pandora’s pro-forma revenues increased 6% year over year to $474 million owing to 10.8% growth in advertising revenues, which totaled $348 million. This was partially offset by 5.3% decline in subscriber revenues, which came in at $126 million.

Ad revenues were driven by strong fourth-quarter monetization of $94.55 per thousand hours, up 9.9% year over year.

Management stated that strength in traditional audio advertising, backed by video programmatic and engagement-based video as well as the expansion of off-platform efforts and fees generated on the AdsWizz platform, drove ad revenues.

Moreover, ARPU increased 2.3% year over year to $6.76.

Meanwhile, monthly active users (MAUs) were 63.5 million at the end of the reported quarter, down from 69.4 million in the year-ago quarter. Ad-supported listener hours declined 8% year over year to 3.21 billion.

However, Pandora lost 92K self-pay subscribers and exited the fourth quarter with nearly 6.21 million self-pay subscribers, which included 49K paid promotional subscribers.

Operating Details

In the fourth quarter, total operating expenses surged 60.4% year over year to $1.66 billion.

Revenue share and royalty costs soared 80.1% year over year to $607 million. Satellite and transmission costs surged 103.8% year over year to $53 million.

Customer service & billing costs improved 25.5% to $123 million. Programming & content costs were $124 million, up 20.4% while Cost of Equipment remained flat year over year.

Engineering, design and development expenses soared 117.6% from the year-ago quarter to $74 million. Sales and marketing expenses jumped 106.4% to $289 million.

However, subscriber acquisition costs declined 3.4% year over year to $114 million.

Adjusted EBITDA declined 1% year over year to $587 million.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and cash equivalents were $106 million compared with $90 million as of Sep 30, 2019.

Long-term debt as of Dec 31 was $7.84 billion compared with $7.90 billion as of Sep 30.

At quarter-end, Sirius XM’s debt to adjusted EBITDA ratio was 3.2x. The company had $1.75 billion available under its revolving credit facility.

Cash flow from operating activities in fourth-quarter 2019 was $532 million compared with $544 million in third-quarter 2019. Free cash flow was $408 million in the fourth quarter compared with $465 million in the previous quarter.

2020 Guidance

Revenues, on a pro-forma basis, are expected to be approximately $8.1 billion for the year. Adjusted EBITDA is expected to be $2.5 billion.

The company anticipates to add almost 0.9 million Sirius XM self-pay net subscribers.

Free cash flow is expected to be around $1.7 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Sirius XM has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. It's no surprise Sirius XM has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.