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In my Analysis Liberty SiriusXM posted earlier this week I wrote the stock is undervalued by at least 35%. In my valuation the assumption for full year 2024 based on management guidance was a Free Cash Flow just shy of 1.2B and revenue of 8.75B. SiriusXM today announced they are on track to meet their full year guidance.

SiriusXM advertising revenue increased 7% compared to 1Q23, offsetting a 1% drop in subscription revenue. Their adjusted EBITDA went up 4% year-over-year running at a very profitable margin of 30%. A little above my expectations.

They have confirmed the 1.2B free cash flow for 2024 and highlighted this year is a year with peak investment. Coming years a higher share of their EBITDA will convert into free cash flow. Exactly what had been forecasted, with 1.5B free cash flow in 2025.

In my analysis I had mentioned SiriusXM introduced a new platform in December and that it would take time before they will see new subscribers converting their trial period into a paid subscription. SiriusXM is mentioning the same and adds that there are promising engagement indications among new users. SiriusXM is growing their potential conversion funnel, which helps to improve gross adds going forward.

Wallstreet today apparently mainly (or only) looks at the number of paid subscribers and in my eyes is missing the message of promising engagement and the profitable margin announced. But true, the promising engagement is still to be seen. Also SiriusXM is expecting the rollout of 360L to take a bit longer than expected, it will take 2 or 3 months more than expected.

Promising news about their podcast:

“As we continue to iterate this year, we plan to enable sharing and content sampling to broaden access to our content as well as enhance the in app podcast listening experience. This will become more important as we begin to offer podcast windowing and exclusive library access for SiriusXM subscribers that podcast listeners won't find on other platforms. For some of our long time users, the change that came with a completely revamped SiriusXM app was disruptive. Fortunately, the all new platform enables us to iterate and innovate at a much more rapid pace, one that would have been unimaginable under the constraints of our prior platform. We've diligently addressed user feedback and biweekly updates and we've driven significant positive change already this year.”

Source: SiriusXM earnings release Q1 2024.

Other takeaways:

SiriusXM segment $1.7B in revenue, down 1% versus 1Q23 and with a gross margin of 60%. ARPU (average revenue per user) for the quarter up to $15.36 ($15.29).
Pandora and off-platform segment $495M, an increase of 7% versus 1Q23 and a gross margin of 29%, up from 24%. Advertising revenue increased increased by 8% (5% in streaming revenue and 16% in podcasting revenue).
$187M invested during the quarter in clean energy technology investments. Another $50M is planned in 2024. These are equity investments, which will not impact free cash flow. These investments will reduce cash taxes by ~$130M this year. The bulk of the roughly $250M in net after tax benefits will come in the later years of the investment cycle.
First quarter net debt to EBITDA ended at 3.3.
Capex in 2026 and 2027 is expected to be around $300M.
Cost savings 1Q24 at $45M with a total 2024 projected of $200M.
Liberty transaction still planned for early 3Q24.

Overall I don’t see any change towards the analysis provided earlier this week. Stock is down today, but I wouldn’t be surprise if Berkshire keeps on adding. And maybe I’ll do the same when my holiday pay comes in, but don’t tell my girlfriend!

Compound & Fire

SiriusXM First Quarter Earnings Update