Stock Story -
Satellite radio and media company Sirius XM (NASDAQ:SIRI) fell short of analysts' expectations in Q2 CY2024, with revenue down 3.2% year on year to $2.18 billion. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $8.75 billion at the midpoint. Its GAAP profit of $0.08 per share was flat year on year.
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Sirius XM (SIRI) Q2 CY2024 Highlights:
- Revenue: $2.18 billion vs analyst estimates of $2.19 billion (small miss)
- EPS: $0.08 vs analyst expectations of $0.08 (in line)
- The company reconfirmed its revenue guidance for the full year of $8.75 billion at the midpoint
- Gross Margin (GAAP): 53.5%, up from 48.7% in the same quarter last year
- Free Cash Flow of $343 million, up 160% from the previous quarter
- Core Subscribers: 33.26 million, down 790,000 year on year
- Market Capitalization: $13.27 billion
Cable and SatelliteThe massive physical footprints of fiber in the ground or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their traditional cable subscriptions in favor of streaming options. While that is a headwind, this affinity to streaming means more households need high-speed internet, and companies that successfully serve customers can enjoy high retention rates and pricing power since the options for internet connectivity in any geography is usually limited.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Regrettably, Sirius XM's sales grew at a weak 5.9% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Sirius XM's recent history shows its demand slowed as its revenue was flat over the last two years.
Sirius XM also discloses its number of core subscribers and pandora subscribers, which clocked in at 33.26 million and 5.94 million in the latest quarter. Over the last two years, Sirius XM's core subscribers were flat while its pandora subscribers averaged 3.1% year-on-year declines.
This quarter, Sirius XM missed Wall Street's estimates and reported a rather uninspiring 3.2% year-on-year revenue decline, generating $2.18 billion of revenue. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Sirius XM has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company's free cash flow margin averaged 14.2% over the last two years, better than the broader consumer discretionary sector.
Sirius XM's free cash flow clocked in at $343 million in Q2, equivalent to a 15.7% margin. This quarter's result was good as its margin was 1.4 percentage points higher than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
Over the next year, analysts' consensus estimates show they're expecting Sirius XM's free cash flow margin of 13.6% for the last 12 months to remain the same.
Key Takeaways from Sirius XM's Q2 Results It was good to see Sirius XM beat analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed. Despite the mixed quarter, the company reconfirmed full year revenue guidance, showing that the company is on track. The stock traded up 1.6% to $3.51 immediately following the results.
