Sirius XM Holdings (NASDAQ:SIRI) is finding ways to grow impressively, even in a climate where auto sales remain challenging and streaming services get stronger. The satellite radio giant reported its fourth-quarter results on Wednesday morning, and while a lot of the details were already known -- Sirius XM pre-announced many of its metrics three weeks ago -- we're still seeing it take steps in the right direction.
Revenue rose 7.8% to $1.404 billion, and while that is its second weakest period of top-line growth since 2012, it's clearly growing faster than the auto market that it relies on to drive the lion's share of its subscriber base. Sirius XM posted a rare quarterly deficit, but back out a pair of one-time hits related to the sinking Pandora (NYSE:P) stock price and the impact that lower corporate taxes will have on its deferred tax assets and you land at $0.05 a share. Earnings match the record adjusted per-share profit that the satrad provider achieved a quarter earlier.
Deceleration is better than negative growth
The fresh financials on Wednesday morning were largely stale in terms of timeliness. We already knew how Sirius XM's subscriber count closed out 2017 and that it would meet or exceed its earlier guidance. We also already knew what Sirius XM's initial outlook for 2018 would be. These figures were all divulged three week ago. However, knowing by how much it exceeded some of its earlier 2017 targets would help investors fine-tune the growth that Sirius XM is expecting in the year ahead.
Revenue of $5.425 billion for all of 2017 suggests just 5.1% growth in 2018 given its $5.7 billion goal for 2018. It gets worse. The roughly $2.15 billion in adjusted EBITDA that it's eyeing this year is less than 2% the $2.12 billion it delivered in 2017. Modeling $1.5 billion in free cash flow is actually slightly less than its haul in both 2017 and 2016.
This doesn't mean investors need to panic. For starters, Sirius XM is historically conservative with its initial outlook. As long as the economy and auto market don't implode, it's a fair bet that Sirius XM will be inching those goalposts higher as 2018 plays out. The other reason for investors not to freak out is that Sirius XM is still growing. It should grow its audience of 32.7 million subscribers -- with 27.5 million of those as self-pay accounts -- by at least a million more listeners this year. It may not be the speedster it was during the early days of satellite radio adoption, but it's still taking small steps in the right direction.
There are a couple of other trends working in its favor. Average revenue per user continues to inch higher. Subscriber acquisition cost per installation is inching lower. Monthly churn is holding steady. Ad revenue per user is on the rise as marketers pay up to reach Sirius XM's affluent audience on the go.
Slowing growth may eat into what the market deems is a fair valuation for Sirius XM. It also remains to be seen what Sirius XM will do with Pandora if the stock keeps sinking. The $480 million it invested last year for a 19% convertible stake made sense last year, but it's going to be a nuisance if Pandora keeps dropping in 2018 the way it has in recent months as the streaming market grows more competitive. We already knew the best parts of Wednesday's morning report from the pre-announcement three weeks ago, but now it's up to Sirius XM to prove that the stock that has risen for nine consecutive years can stretch its streak to 10 in 2018.