Sirius XM's (SIRI) Business Update: Coronavirus to Hurt Growth

In an 8K filing on Jun 8, Sirius XM Holdings SIRI provided an update on the impact of coronavirus (COVID-19) outbreak on its business.

The company currently expects to report positive net new self-pay subscribers for the second quarter ending Jun 30, 2020. Notably, Sirius XM added 69K net self-pay subscribers in the first quarter.

However, Sirius XM believes, the pandemic and its related economic impact will hurt subscriber, advertising and equipment revenues as well as the sale of satellite radios, components and accessories.

Notably, subscriber, advertising and equipment accounted for 81.2%, 14.6% and 2.1% of first-quarter 2020 revenues, respectively.

Shares of this Zacks Rank #2 (Buy) company have declined 8.9% year to date, underperforming the industry’s rally of 5.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sirius XM Holdings Inc. Price and Consensus

Sirius XM Holdings Inc. Price and Consensus

Sirius XM Holdings Inc. price-consensus-chart | Sirius XM Holdings Inc. Quote

 

Slump in New & Used Car Sales to Limit Top-Line Growth

Management expects muted automobile sales to be a major headwind. New car sales in the United States were down roughly 47% in April and 29% in May year over year. Used car sales also declined during these months but less severely than new car sales.

Per management, in April 2020, the penetration rate of satellite radios in new vehicle production was approximately 79.5%. However, the softness in new car sales that began in mid-March 2020 will affect the company’s trial starts in the second quarter of 2020.

This along with weak used car sales significantly reduces opportunity for Sirius XM to convert consumers from trial to self-pay subscriptions in the remainder of the quarter.

Hence, the decrease in new and used car sales is expected to hinder Sirius XM’s subscription growth for its satellite radio service in the near term. Notably, in first-quarter 2020, subscriber revenues grew 8.7% year over year to $1.58 billion.

Nevertheless, Sirius XM’s expanding partner base is a positive. Verizon Communications VZ recently partnered with Sirius XM to deliver the latter’s 360L entertainment platform to 10 Audi vehicles (2021 model) in the United States.

Moreover, availability of its content on Amazon’s AMZN Echo and Alexa connected devices, and Alphabet’s GOOGL Google assistant is expected to broaden subscriber base further.

COVID-19 Hampers Advertising Business

The COVID-19 outbreak is also weighing on Sirius XM’s advertising business, which jumped 36.4% year over year to $285 million in the first quarter.

Lower ad demand and spending has dented advertising revenues since mid-March 2020. Notably, several categories of advertisers either cancelled or stopped orders during the second quarter.

Although the trend in advertising orders improved somewhat recently, Sirius XM expects advertising revenues to be negatively impacted during the balance of 2020.

Moreover, ad hours on the company’s Pandora services decreased significantly following the implementation of stay-at-home guidelines in mid-March 2020.

However, ad hours bettered in recent weeks to modest declines on a year-over-year basis, much similar to what Pandora has experienced for the past several years.

Encouraging Liquidity Position

Sirius XM believes that its liquidity position is stable. As of Jun 5, 2020, the company had approximately $224.6 million of cash in hand and $1.75 billion was available under its revolving credit facility.

Notably, the company started a private offering of $1 billion Senior Notes due 2030. It plans to use the net proceeds from the offering along with cash in hand to redeem all its outstanding 5.375% Senior Notes due 2025 at a redemption price of 102.688% of the principal amount.



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