Can Sirius Xm Radio’s Subscription Business Add $1 Billion In Revenues In The Next 2 Years?
Sirius XM Radio (NASDAQ: SIRI) saw its subscription revenue increase from $4.2 billion in 2016 to $4.6 billion in 2018, marking an increase of $0.4 billion in two years. However, following the acquisition of Pandora Media in early 2019, Sirius has become the world’s largest audio media company. Trefis estimates that additional subscribers and technological competence of Pandora is likely to lead to Sirius’ subscription revenue to increase from $4.6 billion in 2018 to $5.5 billion in 2020, marking an increase of $0.9 billion in segment revenues over the next two years.
You can view the Trefis interactive dashboard – What Is Driving Growth In Sirius XM’s Subscription Revenue? – to understand movement in the key metrics that could lead to a sharp rise in top line.
Effects of deal with Pandora
- Sirius XM completed the acquisition of Pandora for $3.5 billion in an all-stock deal in early 2019.
- With SiriusXM’s subscription-based national service of curated and exclusive content and programming, and Pandora, the largest U.S. streaming music provider with its highly personalized free ad-supported service, under one roof, the combined entity now caters to more than 100 million listeners in North America.
- This deal holds great potential for both companies as it could bolster their positions in segments where they are currently lacking.
- Pandora’s technological competence should help SiriusXM expand beyond vehicles and streamline its features like personalized recommendations.
- Concurrently, SiriusXM’s alliance with several automakers should accelerate Pandora’s distribution to vehicles and unlock music streaming services for automobiles.
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A) Sirius’ Subscription Revenue
- Subscription revenue includes self-pay and paid promotional subscriptions and other ancillary fees for its programming line-up of commercial-free music plus sports, entertainment, comedy, talk, and news. It also includes fees charged for Pandora Plus and Pandora Premium subscriptions.
- After increasing by $0.4 billion between 2016 and 2018, subscription revenue is expected to increase by more than double, i.e. by around $0.9 billion over the next two years.
- Revenue addition is expected to be >2x primarily due to increased subscriber base and a modest rise in average revenue per user (ARPU).
a) Subscriber Count
- With the acquisition of Pandora in early 2019, SiriusXM has added a net of 210,000 satellite radio subscribers whereas Pandora has added 33,000 net new self-pay subscribers in Q3 2019.
- Sirius ended September 2019 with ~34 million subscribers, including ~29 million self-pay subscribers, in addition to Pandora’s nearly 6 million self-pay subscribers.
- The subscriber base of the company as a whole is expected to increase to slightly over 40 million by 2020, which would reflect an addition of 6.1 million subscribers between 2018 and 2020, which is more than double the number of subscribers added – 2.7 million – between 2016 and 2018, mainly due to acquisition benefits.
b) Average Revenue Per User (ARPU)
- ARPU is expected to increase over the next two years, driven by higher US Music Royalty rate along with higher fees charged for Pandora Plus and Pandora Premium subscriptions.
- Growth in ARPU could be slightly affected in the near term by the expiration of the one-year promotional trial with T-Mobile.
Total Revenue Growth
- Sirius’ total revenue base could expand by $2.4 billion over the next two years, with Trefis projecting revenue to increase from $5.8 billion in 2018 to $8.2 billion in 2020.
- This would be 3x the revenue added over the previous two years – $0.8 billion was added between 2016 and 2018.
- Of the $2.4 billion of additional revenue, around $0.9 billion or 37% is expected to be contributed by subscription revenues alone.
To understand how other revenue divisions are expected to grow, please refer to the Trefis analysis- Sirius XM Revenue: How Does Sirius Make Money?
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