SiriusXM Revenue Slips 2% On ‘Softer’ Start to 2023
Despite lower subscribers and ad revenue dragging down profits, the company claims this is a better quarter than expected.
SiriusXM CEO Jennifer Witz‘s predictions last year that the first two quarters of 2023 would be “softer” proved right, as the audio entertainment company reported that revenue and subscribers edged lower in Q1.
SiriusXM reported revenue of $2.14 billion for the quarter ending March 31, marking a 2% drop, as revenue from subscribers and advertisers both fell between 1% and 2% compared with a year ago.
Still, those modest moves downward were better than the company had predicted for the start of the year, and executives raised their full-year guidance for adjusted earnings before interest, taxes, debt and appreciation (EBITDA) to $2.75 billion from $2.7 billion. They also raised their free cash flow guidance to $1.1 billion from $1.05 billion for the year.
“We outperformed our initial financial expectations, putting us in a strong position to increase our full-year guidance,” Witz said on a call discussing earnings. “We intend to make prudent decisions to remain a very profitable business that continues to serve as a primary audio subscription service to certain audio segments while being complementary to others.”
The company’s cost-cutting campaign — which has impacted its real estate footprint, workforce and marketing spend — helped allow for continued investment in tech improvements Witz says will improve future growth. Costs related to the new product launches, expected later this year, reached $68 million in the quarter, up 15% from a year ago.
However, the 17% reduction in sales and marketing spend, combined with lower numbers of customers starting trial subscriptions late last year, contributed to 347,000 fewer SiriusXM self-pay subscribers for the quarter. The company ended the quarter with 7.2 million trial users, compared with 6.9 million a year ago.
Self-pay subscribers of Pandora Plus and Premium tiers increased by 7,000 from the previous quarter, but the total number of subscribers edged 2% lower, to 6.2 million in the first quarter from a year ago.
“We are still expecting modestly negative [subscriber growth] for the year,” Witz said. “I would expect the second half to be positive, and that nets us out to the modestly negative.”
The company is in the process of updating the back-end technology and its SiriusXM app, tools Witz says will make it easier to find specific genres, make purchases in the car and elsewhere, and further personalize the experience. The hope is that this will enable the company to introduce new products to the app faster, a key part of its growth strategy.
“We are really focused on investing in this new platform and making sure that positions us for growth going forward,” Witz said on the earnings call.
Key SiriusXM financial highlights:
- The company forecast it will generate approximately $9 billion in total revenue for 2023, along with $2.75 billion in adjusted EBITDA and $1.1 billion in free cash flow.
- The company reported $2.14 billion in revenue, down 2% from the prior year.
- Adjusted EBITDA was down 9% from the year-ago quarter at $625 million.
- SiriusXM reported segment revenue of $1.7 billion, down 2% from the prior-year period, due to lower ad revenue and vehicle paid promotional revenue.
- Average revenue per user (ARPU) fell $0.24 to $15.29.
- Self-pay subscribers decreased by 347,000.
- SiriusXM’s total cost of services rose 2% to $664 million in the quarter on higher programming and royalty costs.
- SiriusXM’s gross margin of 61% slipped one percentage point from the prior year.
Pandora and Off-Platform Segment
- The Pandora and off-platform segment generated $462 million in revenue, down a slight 1% from the year-ago quarter’s $467 million.
- Advertising revenue in the segment held roughly flat from a year ago.
- The segment’s gross margin was 24%, down 5 percentage points from the prior-year period.