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Sirius XM Radio Comes Through With a Great Quarter

By Rick Munarriz – Jul 27, 2021 at 11:55AM

Key Points

  • Sirius XM beat top- and bottom-line results on a reported basis on Tuesday.
  • The bottom-line beat was fueled entirely by a one-time insurance item.
  • Sirius XM increased its 2021 goals for subscribers, revenue, adjusted EBITDA, and free cash flow.

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The satellite radio giant beats expectations in its latest quarter. The headline numbers aren't as good as they seem, but Sirius XM jacking up all four metrics of its full-year guidance is very bullish.

Sirius XM Holdings (SIRI -0.15%) checked all the boxes in Tuesday morning's earnings report, and then it rolled out a new checklist. The satellite radio provider exceeded expectations on both ends of the income statement in the second quarter. It also jacked up its guidance for all of 2021.

The premium radio platform was starting to gain momentum after a rough performance through 2020. The pandemic wasn't kind to the auto market, and as a service that's consumed largely in a moving vehicle, Sirius XM suffered from a lack of new listeners. Cancellations from budget-conscious subscribers, whose cars were parked a lot more than usual last year, obviously also didn't help. Last's year's cruel climate ended the stock's streak of 11 consecutive years of delivering positive returns, but it's back on track in 2021. 

A driver pressing settings on a Sirius XM dashboard unit.

Image source: Sirius XM Holdings.

Pumping up the volume 

Revenue soared 15% to $2.16 billion in the second quarter, well ahead of the 9% increase that analysts were modeling. It's the first time in more than four years that Sirius XM has come through with double-digit top-line growth in a quarter. 

Reported earnings were also explosive, with net income nearly doubling to $433 million, or $0.10 a share. Analysts were holding out for just $0.07 a share on the bottom line.

Both beats do come with asterisks. The top-line beat is clean on its own, but we have to remember that revenue declined 5% during last year's second quarter when the country was in the early months of shelter-in-place mandates. We get a better baseline if we compare 2021 to 2019, and in that regard, Sirius XM's quarterly revenue is up a more modest 9% from where it was two years ago.

The earnings beat was peppered by $140 million in insurance recoveries after the SXM-7 satellite had failures in orbit earlier this year and became a total loss. Back that out, and net income rose just 21% -- or 11% higher than where it was two years ago. The growth is higher on a per-share basis as a result of Sirius XM's aggressive buybacks, but if you back out the insurance recoveries, Sirius XM would land on the $0.07 EPS that analysts were targeting.

It's still a great quarter, and Sirius XM is starting to shift into a higher gear. It had 355,000 net subscriber additions in the second quarter, well ahead of the 126,000 net additions it scored through the first three months of the year. The company now has 31.4 million self-pay subscribers. 

Going into the report, Sirius XM was expecting to add 800,000 subscribers to its base of self-pay members, and on Tuesday it boosted that goal to 1.1 million. It's not the only piece of its full-year outlook moving higher. 

  • Sirius XM now sees $8.55 billion in revenue, up from the $8.35 billion it was forecasting three months ago.
  • Adjusted EBITDA is going from $2.575 billion to $2.675 billion.
  • It now sees $1.7 billion in free cash flow for the year, up from $1.6 billion. 

Investors shouldn't get used to the double-digit revenue growth. The second quarter was the perfect storm of depressed satellite radio activity in the second quarter last year and a dearth of advertising a year ago for its Pandora streaming service. The comparisons were easy. Top-line growth turned slightly positive in the third quarter of last year.

However, Sirius XM increasing all four of the metrics it provides in its full-year guidance is the ultimate scorecard here. Its report card might not be as great as it seems at first glance, but the media stock passed with flying colors this week.  

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Sirius XM Radio. The Motley Fool has a disclosure policy.

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