It has been about a month since the last earnings report for Sirius XM Holdings Inc. (SIRI - Free Report) . Shares have added about 10.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SIRI due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sirius XM Holdings delivered first-quarter 2018 earnings of 6 cents per share that beat the Zacks Consensus Estimate by a penny. The figure surged 50% on a year-over-year basis.
Total revenues increased 6.3% from the year-ago quarter to $1.38 billion and were in line with the Zacks Consensus Estimate.
Average Revenue per User (ARPU) remains unchanged at $12.95. ARPU was negatively impacted by 25 cents related to the new revenue recognition standard.
Subscriber revenues (81.2% of total revenues) increased 3.6% year over year to $1.12 billion. In the first quarter, Sirius XM added 330K net new subscribers. As a result, the total subscriber tally as of Mar 31, 2018 was 33.1 million better than 32.7 million as of Dec 31, 2017.
Sirius XM added 206K net new self-pay subscribers in the first quarter to end with approximately 27.7 million self-pay subscribers.
Sirius XM stated that increasing vehicle churn was more than offset by improving non-pay and voluntary churn. Solid new car conversion rates of 39% and used car rates in the high-20s also contributed to self-pay subscriber growth.
Advertising revenues (3.1% of total revenues) increased 16.7% year over year to $42 million. Equipment revenues (2.6% of total revenues) were up 18.2% year over year to $35.1 million.
Music royalty fees and other revenues (13.2% of total revenues) surged 20.5% year over year to $180.9 million.
Automotive Drives Growth
Sirius XM stated that new car penetration remained at 76%, flat on a year-over-year basis. Installed base of vehicles went up 11% year over year to 109 million, or roughly 42% of the total cars on the road in the United States.
Management stated that this figure is poised to grow a further 70%, eventually reaching approximately 185 million vehicles by the middle of the next decade.
Moreover, estimated used car penetration was close to 37%. Moreover, used car manufacturing efforts are operational at 32K franchise and independent dealers, up almost 5K from the year-ago quarter.
Management stated that new vehicle trial starts increased 3% to 3.2 million, while used car trial starts grew over 10% to a record 2.3 million, resulting in total trial start improvement of 6% to over 5.4 million.
At the end of the quarter, the total trial funnel stood at over 9.1 million with paid trials expanding by 124K in the quarter.
New car sales are growing at 2% and Sirius XM stated that auto sales are now anticipated to be better than previous expectation in 2018, which bodes well for the company.
Sirius XM stated that it will continue to focus on building its presence with independent dealers in 2018.
In the current quarter, Sirius XM is set to launch its new iOS and Android apps, in addition to a new web player, featuring improved interface, more number of channels, content on demand and personalized recommendations.
The company is also scheduled to launch SiriusXM video with initial content from Howard Stern.
Contribution margin was 70.2%, down 50 basis points (bps) on a year-over-year basis, with lower customer service and billing expenses and the accounting change partially negating higher revenue share and royalty expenses.
Revenue share and royalties cost increased 11.8% from the year-ago quarter to $310.1 million. Moreover, satellite and transmission cost was up 10.2% year over year to $22.7 million. However, customer service & billing cost declined 3% year over year to $93.9 million.
Engineering, design and development expenses surged 28.6% from the year-ago quarter to $30.6 million. As percentage of revenues, the figure increased 40 bps to 2.2%.
Sales and marketing expense increased 10.1% from the year-ago quarter to $106.7 million. As percentage of revenues, sales and marketing increased 30 bps to 7.8%.
Subscriber acquisition costs (SAC) dipped 3.8% from the year-ago quarter to $122.7 million. SAC per installation declined 3.6% year over year to $28.18, primarily due to reductions in OEM hardware subsidy rates, lower chipset costs and decrease in the volume of installations.
Adjusted EBITDA increased 6% from the year-ago quarter to $531.8 million. Adjusted EBITDA margin contracted 10 bps to 38.7%, negatively impacted by significant royalty hike.
Operating income advanced 7.5% from the year-ago quarter to $423.6 million. Operating margin also expanded 40 bps to 30.8%.
Balance Sheet & Cash Flow
Cash and cash equivalents were $78.5 million as of Mar 31, 2018 as compared with $69 million at the end of Dec 31, 2017. The company had $1.4 billion available under its revolving facility.
Total debt now stands at approximately $6.8 billion with no bond maturities until August 2022. Debt to adjusted EBITDA was 3.2x at the end of the first quarter.
Sirius XM repurchased over 52 million shares for approximately $295 million, and paid nearly $50 million in dividends to stockholders in the reported quarter.
Sirius XM reiterated full-year 2018 guidance. Revenues are expected to be $5.7 billion, while adjusted EBITDA of roughly $2.15 billion. The company anticipates adding almost 1 million self-pay net subscribers.
EBITDA growth is expected to be flattish in the second half of the year as Sirius XM invests heavily on streaming only solution, video and marketing.
Moreover, free cash flow is expected to be almost $1.5 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter compared to one lower.
Sirius XM Holdings Inc. Price and Consensus
At this time, SIRI has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, SIRI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.