State Champ Radio satellite radio
A dip in SiriusXM‘s paid subscribers in the first quarter caused the satellite radio giant’s stock to fall by more than 7% on Tuesday (April 30), even as first-quarter revenue beat analysts’ expectations.
The company reported that first-quarter revenue inched 0.8% higher to $2.16 billion — analysts polled by the London Stock Exchange were expecting $2.13 billion — thanks mainly to a 7% uptick in ad sales revenue.
Ad revenue totaled $402 million in the quarter, enough to offset a 1% decline in subscription revenue, which came in at $1.68 billion and contributes nearly 80% of the company’s overall earnings.
A 1.4% decline in self-pay subscribers to 31.58 million customers in the quarter contributed to “slightly higher churn” as an increase in sales of vehicles with existing subscriptions led to those subscribers shifting into unpaid trials, SiriusXM CFO Tom Barry said on a call with analysts.
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Executives reiterated their 2024 guidance and said they expected improvements in their subscription revenue, trial subscriptions and ad revenue in the second half of the year.
Despite the rollout of a new and costly streaming app with features SiriusXM says allow it to tailor content to subscribers, executives faced questions from analysts over what will charge future growth.
“On the business side, it’s really about reinvigorating demand,” SiriusXM CEO Jennifer Witz said on the call. “It’s taking longer than we’d hoped in terms of the rollout of the new platform and our ability to capitalize on improvements in marketing. But the key opportunities to build demand … are clear, across price, discovery and control, and we have this multipronged effort to [drive] these things.”
The company is hopeful that the revamped app, which launched in December and costs $9.99 per month, will attract new subscribers and drive revenue growth.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 4% to $650 million. The company’s gross profit edged 0.6% higher to $1.13 billion, while the gross profit margin held flat at 53% in the quarter compared to last year. Total operating expenses held roughly flat at $1.73 billion.
Warren Buffett’s Berkshire Hathaway is a big investor in SiriusXM, having purchased nearly 9.7 million shares worth approximately $44 million last fall and then another 1.9 million shares worth $50 million of its tracking stock earlier this month.
In February, SiriusXM laid off 3% of its workforce affecting around 170 workers at the company, which said the cuts would enable it to invest in content and new technologies.
SiriusXM’s stock closed at $2.92 on Tuesday (April 30), down 7.2%.
SiriusXM added 131,000 self-pay subscribers in the fourth quarter and beat its full-year guidance for earnings and free cash flow while only slightly missing its revenue goal, the company announced Thursday (Feb. 1). The satellite radio giant lost 445,000 self-pay subscribers for the full year, however.
Full-year revenue declined 0.6% to $8.95 billion, slightly below last quarter’s guidance of $9 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 2% to $2.8 billion, coming in a little above guidance of $2.75 billion. Free cash flow of $1.2 billion was down about 23% but beat guidance by $50 million.
SiriusXM, built on a satellite radio service favored by older consumers, is in re-building mode. The company launched a new app in November and a $9.99-per-month streaming-only subscription service aimed at younger audiences who don’t listen primarily in their cars. The app houses Sirius’ 400-plus channels in addition to an audio library and a growing stable of podcast content that includes such brands as Smartless, which earlier this week left Amazon’s Wondery after striking a $100 million deal with SiriusXM, and Conan O’Brien’s Team Coco, which SiriusXM acquired in 2022.
The strategy isn’t likely to produce results this year, though. “While early indications are showing signs of positive impacts of our business investments, it will take time for these to fully reflect in our subscriber and financial metrics,” said CEO Jennifer Witz during Thursday’s earnings call.
While SiriusXM expects “roughly level” subscriber numbers in 2024, new streaming-only subscribers pay less than satellite radio subscribers and will result in a lower average revenue per user. Those factors, along with an advertising market Witz called “uncertain,” leads the company to expect two of its key financial metrics to fall in 2024. Full-year revenue guidance of $8.75 billion would be a 2.2% decline from $8.95 billion in 2023, while adjusted EBITDA guidance of $2.7 billion would mark a 3.3% year-over-year decline. Free cash flow is expected to remain at $1.2 billion.
Investors appeared to have baked the rebuild process into their forecasts and did not react negatively to Thursday’s earnings results. Shares of SiriusXM rose as much as 5.1% on Thursday morning and closed at $5.23, up 2.8%.
SiriusXM’s satellite radio service generated full-year revenue of $6.8 billion, down 1% year over year. Self-pay subscribers grew 131,000 in the fourth quarter after falling 96,000 in the third quarter. For the full year, self-pay subscribers fell by 445,000 to approximately 34 million. Paid promotional subscribers dropped by 225,000 in the fourth quarter but increased by 15,000 for the full year.
Pandora revenue increased 1% to $1.6 billion, while its subscribers fell 3% to 6.0 million, down from 6.2 million at the end of 2022. The music streaming service finished the year with 46.0 million monthly active users, down 3.4% from 47.6 million in the prior-year period. Total ad-supported listener hours of 10.48 billion in 2023 was down 4% from 10.88 billion in 2022. Pandora’s gross profit dipped 3% to $638 million.
SiriusXM laid off 8% of its staff in March 2023, which resulted in approximately $140 million in cost savings, CFO Tom Barry said on Thursday. This year, the company is targeting nearly $200 million in additional savings, he added, that will be “reinvested” in “more targeted and more performance-oriented marketing on the streaming side.”
SiriusXM’s full-year 2023 financial metrics
Total revenue of $8.95 billion, down 0.6%.
Adjusted EBITDA of $2.8 billion, down 2%.
Free cash flow of $1.2 billion, down 23%.
SiriusXM revenue of $6.8 billion, down 1%.
Pandora revenue of $1.6 billion, up 1%.
SiriusXM satellite radio self-pay subscribers of 34 million.
Pandora subscribers of 6 million.
Satellite radio giant SiriusXM reported quarterly net profits rose nearly 50% compared to a year ago, but that it also lost 96,000 self-pay subscribers in recent months.
The company reported on Tuesday (Oct. 31) that net income was $363 million, up from $247 million in the third quarter of last year, while revenues held roughly flat from a year ago at $2.27 billion for the quarter ended Sept. 30.
Chief executive Jennifer Witz said in a statement that the company’s investments in new product and technology upgrades — expected to be unveiled next week — will help grow Sirius’ subscriber base and business by helping customers find exclusive event content from top programs and artists, including Ed Sheeran and Wu-Tang Clan.
“Our content portfolio continues to differentiate us in the audio marketplace with exclusive access to live sports, talk, music, and one-of-a- kind content,” Witz said in a statement, calling the next-gen platform “a key component of our long- term vision for the company’s consumer offerings.”
“The ongoing enhancements to our user experience will ensure that our unique suite of content resonates with our audience in increasingly personalized ways,” she said. “This leading content and upcoming product upgrade will be paired with our unmatched business model, which we expect to continue delivering significant and growing free cash flow in the years ahead.”
The looming tech releases are geared toward improving “discoverability, personalization, and ease of use to both streaming and in-car subscribers,” according to a statement, and they will kick off with the unveiling of a new app, followed by in-car updates.
Investment in the app and updates was costly. In March, SiriusXM announced it was cutting 8% of its workforce to accomodate continued investment while ad sales slumped and subscriber growth was sluggish.
While SiriusXM reported a decline in self-pay subscribers and paid promotional subscribers, the total number of subscribers and the total revenue from SiriusXM held flat from a year ago at 34 million and $1.6 billion respectively. Average revenue per user was also flat at $15.69, despite getting a boost from certain full-price subscription rate hikes.
Advertising revenue for the company’s Pandora and off-platform business edged 3% higher to $418 million from a year ago, due to increases ad sales in programs and podcasts.
The number of monthly active users on Pandora fell to 46.5 million from 48.8 million a year ago. Subscriber revenue held flat at $132 million from a year ago.
Here’s a snapshot of the company’s quarterly earnings:
Third Quarter 2023 Revenue of $2.27 Billion
Net Income of $363 Million, Up 47% Year-Over-Year; Diluted EPS of $0.09
Adjusted EBITDA of $747 Million, up 4% compared to $720 million in the third quarter of 2022
Free cash flow of $291 million, down from $329 million in the prior year period
In its first legal response to a SoundExchange lawsuit alleging underpayment of $150 million in artist royalties, SiriusXM claimed in a court filing Friday (Sept. 22) that SoundExchange’s numbers rely on a “so-called audit” that was a “flawed and biased examination” and insists the satellite-radio giant “properly calculated its royalty payments to SoundExchange in all material respects.”
The filing, which demands a change of U.S. court venue from Virginia to New York or Washington, D.C., also bashes the royalty collection and distribution service for trying to “justify its existence, lofty executive salaries and luxurious operating style through repeated litigation against its biggest contributor.”
In a phone interview before the filing, George White, SiriusXM’s senior vp of music licensing and royalties, says the SoundExchange lawsuit, filed in August, caught his company by surprise. “We were discussing settlement with them,” adds White, a former longtime major-label executive. “We really took some time to review it.”
White says the lawsuit comes down to a difference of opinion over SoundExchange’s “method of calculating their deduction.” He argues that SiriusXM has paid SoundExchange $5 billion in performance royalties for sound recordings over the last 10 years, and contributed “the vast majority” of the $805 million the service collected last year. “The rhetoric in the suit itself and the press release around the suit seems really unfair and wholly inappropriate,” White says. “In fact, we want to make every effort to ensure everyone is compensated fairly.”
SoundExchange, which collects royalties from webcasters and non-terrestrial radio services on behalf of artists and labels, argued in its Aug. 16 lawsuit that Sirius XM was bundling its satellite radio and streaming service, mixing the revenue in order to improperly reduce its royalty bill. The U.S. government mandates different royalty rates for satellite-transmitted services (like SiriusXM’s traditional satellite radio) and webcasting under so-called statutory licenses, but SoundExchange’s lawsuit declared that “Sirius XM has unjustly enriched itself to the detriment of recording artists and copyright owners upon whose music Sirius XM has built its business.”
In its response, SiriusXM accused SoundExchange of “misguided allegations” and argued a “proper audit” would conclude the company “properly calculated its royalty payments to SoundExchange.” The company also criticized SoundExchange for taking advantage of what it called the Virginia court’s “rocket docket,” which, regional lawyers have said, results in fast-moving cases, little time for discovery and quick resolution.
“We’re very hopeful that we can proceed down the lines of having a productive settlement discussion,” White says. “I would far rather that we had a close relationship with SoundExchange that was about working to grow SiriusXM’s contributions to SoundExchange.”
SoundExchange didn’t immediately respond to Billboard‘s request for comment.
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