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Sirius XM (SIRI) Q3 Earnings and Revenues Top Estimates

Sirius XM Holdings Inc.SIRI reported third-quarter 2018 earnings of 7 cents per share that beat the Zacks Consensus Estimate by a penny. The figure increased 16.7% on a year-over-year basis.

Total revenues increased 6.4% from the year-ago quarter to $1.47 billion and beat the Zacks Consensus Estimate of $1.46 billion. The increase was driven by growth in subscribers.

Average revenue per user (ARPU) increased 0.5% year over year to $13.48. The new revenue recognition standard negatively impacted ARPU by 24 cents.

Segment Details

Subscriber revenues (79.2% of total revenues) increased 2.3% year over year to $1.16 billion. In the third quarter, Sirius XM added 198K net new subscribers. As a result, total subscribers, as of Sep 30 were 33.7 million, better than 33.5 million as of Jun 30.

Sirius XM added 298K net new self-pay subscribers in the third quarter to end with approximately 28.5 million self-pay subscribers.

Sirius XM stated that that the self-pay monthly churn rate of 1.8% improved 12 basis points (bps) year over year. New car conversion rates were 39% and used car rates were in the high-20s in the third quarter.

Advertising revenues (3.1% of total revenues) increased 11.4% year over year to $46.2 million. Equipment revenues (2.8% of total revenues) were up 25.9% year over year to $40.7 million.

Music royalty fees and other revenues (14.9% of total revenues) rose 28.4% year over year to $218.1 million.

Sirius XM Holdings Inc. Price, Consensus and EPS Surprise

Sirius XM Holdings Inc. Price, Consensus and EPS Surprise | Sirius XM Holdings Inc. Quote

Automotive Drives Growth

At the end of the third-quarter, over 113 million vehicles on road were equipped with Sirius XM-enabled radios, up 13% year over year and representing approximately 43% of all the cars in the country currently.

Installations during the quarter increased 0.19% year over year to approximately 3 million. Moreover, used car penetration was 40%, an increase of 400 bps from the year-ago quarter.

Management stated that total trial starts in the quarter increased 4% to 5.7 million, including used car trial starts growth of 8.5% to over 2.3 million. At the end of the quarter, total trial funnel was more than 9.2 million, up 300K from the year- ago quarter. However, paid trials declined 100K in the quarter.

Sirius XM stated that it will continue to focus on building its presence with independent dealers in 2018.

Recent Updates

On Sep 24, Sirius XM announced the acquisition of Pandora Media P in an all-stock deal worth $3.5 billion.

Pandora has a huge user base of 71.4 million monthly active users (MAUs). The combined entity is now expected to generate estimated pro-forma revenues of more than $7 billion for 2018. The transaction is expected to close in the first quarter of 2019.

Recently, the company announced plans to introduce a promotion plan with Amazon's AMZN Echo. Under the new promotion, existing Echo holders will have access to free trials to a few of its subscription packages.

Also, users who subscribe to its services through Sirius' website will be provided with Amazon's Echo Dots, per Reuters .

Operating Details

Contribution margin was 69.8%, down 150 bps on a year-over-year basis, with lower customer service and billing expenses, and cost of equipment and the accounting change partially negating higher revenue share and royalty expenses.

Revenue share and royalties cost increased 15.7% from the year-ago quarter to $343 million. Moreover, satellite and transmission cost was up 13.5% year over year to $24.3 million. Customer service & billing cost almost remained flat year over year at $94.6 million.

Engineering, design and development expenses increased 5.4% from the year-ago quarter to $31 million. Sales and marketing expense increased 3.3% from the year-ago quarter to $118.3 million.

However, subscriber acquisition costs (SAC) declined 8.4% from the year-ago quarter to $109.5 million. SAC per installation declined 20% year over year to $23.67, primarily due to reductions in OEM hardware subsidy rates, lower chipset costs and accounting change.

Adjusted EBITDA increased 7% from the year-ago quarter to $589.3 million, primarily due to reduced subscriber acquisition costs and fixed operating expenses as a percentage of revenues. Adjusted EBITDA margin contracted 20 bps to 40.2%.

Operating income increased 11.2% from the year-ago quarter to $482.6 million. Operating margin contracted 140 bps to 32.9%.

Balance Sheet & Cash Flow

Cash and cash equivalents were $46 million as of Sep 30, 2018 compared with $63.5 million at the end of Jun 30, 2018.

Sirius XM repurchased over 334 million shares and paid nearly $50 million in dividends to stockholders in the reported quarter.

Guidance

Sirius XM raised its full-year guidance for self-pay net additions, revenues and adjusted EBITDA.

Revenues are expected to be approximately $5.73 billion while adjusted EBITDA is expected to be roughly $2.2 billion (up from $2.15 billion). The company anticipates adding almost 1.275 million self-pay net subscribers (up from 1.15 million).

Free cash flow is expected to be around $1.5 billion.

Zacks Rank & Another Key Pick

Currently, Sirius XM carries a Zacks Rank #2 (Buy).

Another top-ranked stock in the consumer discretionary sector is Gaia, Inc. GAIA sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term earnings growth rate for Gaia is projected to be 15%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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