Source: Sirius XM.
It was easy to be worried about
Sirius XM Holdings
heading into this morning's quarterly results, but the satellite
radio provider silenced those concerns with another blowout
stock took a hit last week when the music streamer reported
financial results that included sequential dips for June in
active users, content served, and even its share of the U.S.
radio listening market. Was a shakeout starting in the bustling
digital music market now that tech giants are throwing big money
at acquisitions and connected cars are broadening their reach to
play nice with newer streaming apps?
We don't know if Sirius XM's strong second quarter included
any sequential dips between May and June. The satellite radio
star never followed Pandora into the practice of putting out
monthly metrics, which Pandora itself is no longer
providing. However, we do know that Sirius XM held up nicely
for the quarter as a whole.
Revenue rose 10% to $1.035 billion, above the 8% top-line
uptick that analysts were targeting. Sirius XM's subscriber base
topped 26.3 million, gaining 475,472 net additions during the
quarter and more than 1.2 million over the past year.
Net income only inched 2% higher on a pre-tax basis, as
operating expenses spiked higher during the period. The increase
in expenses came mostly from higher revenue share and royalty
payments, but marketing, customer service, and general and
administrative costs also outpaced revenue and subscriber growth.
That was countered by welcome dips in content costs and
subscriber acquisition costs. Free cash flow, adjusted
profitability, and EBITDA all rose at healthier clips from a year
Sirius XM's profit of $0.02 a share matched expectations.
Despite being waist-deep in what is now
$6 billion in stock buyback authorizations
-- including 350,000 shares repurchased during the quarter itself
-- there are still too many shares outstanding to move the needle
on a per-share basis.
Sirius XM stock opened 3% higher on Tuesday on the news. The
revenue beat and encouraging subscriber growth were welcome, but
the real driver pushing the stock up is Sirius XM boosting its
full-year 2014 guidance higher for revenue, adjusted EBITDA, and
free cash flow. It's true that Pandora took a hit last week
despite boosting its own revenue and adjusted earnings outlook
for the year. It's also true that Sirius XM kept its subscriber
guidance intact. As long as the company continues to see its
popularity swell -- something that Pandora investors didn't see
between the months of May and June -- market sentiment will
reward Sirius XM's overall performance.
There are plenty of moving parts here. More automakers are
making it easier for folks to turn to a growing number of digital
music apps right from their steering wheels and dashboards as
long as they have a Bluetooth-tethered smartphone. This has
opened up the alternatives beyond satellite radio as a fix to
commercial-laden terrestrial radio, but wireless carriers weaning
consumers off of unlimited data plans mean that these "free"
ad-supported apps aren't entirely free.
Sirius XM appears to be holding up well in this environment.
Strong auto sales are exposing more consumers to
factory-installed receivers, and while conversion rates on these
free trials are at a historical low of 42%, Sirius XM is clearly
making it up in volume.
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originally appeared on Fool.com.
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