Sirius XM (NASDAQ:SIRI) Reports Q4 In Line With Expectations But Full-Year Sales Guidance Misses Expectations

Full Report / February 01, 2024

Satellite radio and media company Sirius XM (NASDAQ:SIRI) reported results in line with analysts' expectations in Q4 FY2023, with revenue flat year on year at $2.29 billion. On the other hand, the company's full-year revenue guidance of $8.75 billion at the midpoint came in 4.2% below analysts' estimates. It made a GAAP profit of $0.09 per share, down from its profit of $0.09 per share in the same quarter last year.

Sirius XM (SIRI) Q4 FY2023 Highlights:

  • Market Capitalization: $19.55 billion
  • Revenue: $2.29 billion vs analyst estimates of $2.29 billion (small miss)
  • EPS: $0.09 vs analyst estimates of $0.08 (15.7% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $8.75 billion at the midpoint, missing analyst estimates by 4.2% and implying -2.3% growth (vs -0.6% in FY2023)
  • Free Cash Flow of $445 million, up 52.9% from the previous quarter
  • Gross Margin (GAAP): 54%, up from 50.2% in the same quarter last year
  • Sirius XM Subscribers: 33.88 million

Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.

Formed by the 2008 merger of Sirius Satellite Radio and XM Satellite Radio, Sirius XM offers a diverse range of radio content with broader coverage than traditional AM/FM radio. This move addressed the demand for varied and accessible nationwide content, overcoming the constraints of conventional radio broadcasts that are confined by the reach of their local radio signals.

Sirius XM delivers an extensive lineup of music, sports, news, talk shows, and entertainment through satellite and online streaming. Sirius XM differentiates itself by offering premium, hard-to-find content, appealing to listeners seeking a superior radio experience.

The company's revenue model centers on subscription fees, augmented by advertising on some channels, along with equipment and service sales.

Cable and Satellite

Cable and satellite companies often enjoy local oligopolies as there are limited options if a household or business wants TV or internet service. The flip side of this coin is that these businesses have oligopolies because they are capital-intensive, with multi-year investments in laying fiber, for example, needed to serve customers. These massive physical footprints make it challenging to adjust 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.

Competitors in the radio broadcasting and media services sector include iHeartMedia (NASDAQ:IHRT), Cumulus Media (NASDAQ:CMLS), and Urban One (NASDAQ:UONE).

Sales Growth

A 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 may grow for years. Sirius XM's annualized revenue growth rate of 9.2% over the last 5 years was weak for a consumer discretionary business. Sirius XM Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Sirius XM's recent history shows its growth has slowed, as its annualized revenue growth of 1.5% over the last 2 years is below its 5-year trend.

We can better understand the company's revenue dynamics by analyzing its number of sirius xm subscribers and pandora subscribers, which clocked in at 33.88 million and 6.01 million in the latest quarter. Over the last 2 years, Sirius XM's sirius xm subscribers were flat while its pandora subscribers averaged 2.7% year-on-year declines.

This quarter, Sirius XM's $2.29 billion of revenue was flat year on year and in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2% over the next 12 months, an acceleration from this quarter.

Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Sirius XM has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer discretionary business, boasting an average operating margin of 22.2%.

Sirius XM Operating Margin (GAAP)

In Q4, Sirius XM generated an operating profit margin of 21.4%, down 3.2 percentage points year on year. This reduction indicates the company was less efficient with its expenses over the last year, spending more money in areas like corporate overhead and advertising.

Over the next 12 months, Wall Street expects Sirius XM to become more profitable. Analysts are expecting the company’s operating margin to rise by 1.7 percentage points, certainly a welcome development.


Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. Sirius XM EPS (GAAP)

Over the last 5 years, Sirius XM's EPS grew 41.7%, translating into an unimpressive 7.2% compounded annual growth rate. Furthermore, This performance is lower than its 9.2% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.

Sirius XM's operating margin has declined 9.3 percentage points over the last 5 years, leading to lower profitability and earnings. Other line items like taxes and interest expenses can also cause differences between revenue and EPS growth, but they don't tell us as much about a company's fundamentals.

In Q4, Sirius XM reported EPS at $0.09, down from $0.09 in the same quarter a year ago. This print beat analysts' estimates by 15.7%. Over the next 12 months, Wall Street expects the company to grow earnings with analysts projecting a 1% year-on-year increase in EPS to $0.09.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Sirius XM has shown solid cash profitability, giving it the flexibility to reinvest or return capital to investors. The company's free cash flow margin has averaged 15.3%, above the broader consumer discretionary sector.

Sirius XM Free Cash Flow Margin

Sirius XM's free cash flow came in at $445 million (19.5% margin) in Q4, down 15.9% year on year.

Over the next year, analysts predict Sirius XM's cash profitability will improve. Their consensus estimates imply a 5.8 percentage point increase in the company's free cash flow margin.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company's revenue growth was profitable. But was it capital-efficient? If two companies had equal growth, we’d prefer the one with lower reinvestment requirements.

Understanding a company’s ROIC (return on invested capital) gives us insight into this because it factors the total debt and equity needed to generate operating profits. This metric is a proxy for not only the capital efficiency of a business but also a management team's ability to allocate limited resources.

Sirius XM's five-year average ROIC was 22.4%, beating other consumer discretionary companies by a wide margin. Just as you’d like your investment dollars to generate returns, Sirius XM's invested capital has produced robust profits.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Sirius XM's ROIC has averaged a 15 percentage point increase each year. Sirius XM has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable investment opportunities are growing.

Key Takeaways from Sirius XM's Q4 Results

It was good to see Sirius XM beat analysts' adjusted EBITDA and EPS estimates this quarter, driven by better-than-expected results in its Pandora segment. That stood out as a positive in these results. On the other hand, its full-year revenue, adjusted EBITDA, and EPS guidance fell short. Overall, this was a mediocre quarter for Sirius XM. The stock is flat after reporting and currently trades at $5.1 per share.

Is Now The Time?

Sirius XM may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We think Sirius XM is a solid business. Although its revenue growth has been a little slower over the last five years with analysts expecting growth to slow from here, its remarkable increase in ROIC shows its business quality is rising. And while its projected EPS for the next year is lacking, its impressive operating margins show it has a highly efficient business model.

Sirius XM's price-to-earnings ratio based on the next 12 months is 16.2x. There are definitely things to like about Sirius XM, and looking at the consumer discretionary landscape right now, it seems to be trading at a reasonable price.

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