Should Sirius XM’s Revenue Growth Outlook For 2020 Be A Concern?

by Trefis Team
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Sirius XM Radio (NASDAQ: SIRI) has guided for a revenue growth of just 4% to $8.1 billion in 2020, which would be the lowest in the company’s history. This will follow a 35% revenue growth in 2019, which was largely due to the acquisition of Pandora’s business. The company is also projecting self-pay net subscriber ads of around 900,000 in 2020. However, Sirius XM has been adding more than 1 million net self-pay additions for the last eight years.

Subscription business, which generates revenues from fees charged for self-pay and paid promotional subscriptions, is expected to contribute $6.2 billion to Sirius XM’s 2020 revenues, making up 77% of the company’s $8.1 billion in revenues for 2020. The Subscriber segment contribution is five times that from the Advertising business, where revenue is generated from the sale of advertising on Sirius XM’s non-music channels and from Pandora’s audio, video, and display advertising. Sirius XM’s subscription business will provide $1.3 billion, which is 44% of $2.8 billion in total revenue the company is expected to add between 2017 to 2020. This subscription revenue growth has been key to Sirius XM’s 60% price appreciation during the same period, further helped by stable margins, and strong expansion in Sirius XM’s valuation multiple.

We have created an interactive dashboard Sirius XM: How Does It Make Money? where we discuss Sirius XM’s business model, followed by sections that review past performance and 2020 expectations for Sirius XM’s revenue drivers, including subscriber base and competitive comparisons with Apple, Amazon, and Roku.

Sirius XM’s Total Revenue has grown 44% from $5.3 billion in 2016 to almost $7.8 billion in 2019 and is expected to grow just around 4% to  $8.1 billion in 2020. This revenue growth is to be driven by about $6.2 billion from Subscribers division, $1.5 billion from Advertising division, and $365 million from Equipment & Others segment.

(A) Revenue from Subscriber division to increase 2% (about $123 million) in 2020, with its share of Total Revenue expected to be about 77%.

  • Overall, Subscription revenue increased from $4.2 billion in 2016 to $6.1 billion in 2019, driven by higher U.S. Music Royalty Fees due to a higher music royalty rate, higher self-pay subscriptions revenue as a result of increase in the daily weighted average number of subscribers, and higher revenue from connected vehicle services.
  • We expect revenue to grow slightly to about $6.2 billion in 2020, driven by slight growth in the subscriber base, increases in the average price charged, and the sale of additional services to subscribers.
  • Subscriber sales contributed 79% of total revenue in 2019. This share is expected to go down to 77% in 2020.

(B) Revenue from Advertising to increase 12% (adding about $160 million) in 2020, with its share of Total Revenue expected to be about 18%

  • Segment revenue increased from $138 million in 2016 to $1.3 billion in 2019, driven by an increase in rates charged per spot as well as a greater number of advertising spots sold and transmitted.
  • We expect revenue to grow by about 12% to about $1.5 billion in 2020, led by more advertisers being attracted to its national platform and growing subscriber base, as the company is set to launch additional non-music channels.
  • Advertising sales contributed 17% of total revenue in 2019. This share is expected to go slightly up in 2020.

(C) Revenue from Equipment & Others to increase about $27 million y-o-y to $365 million in 2020, with its share of Total Revenue expected to be about 5%.

  • Segment revenue increased from $119 million in 2016 to $338 million in 2019, driven by higher royalty revenue generated from Sirius XM Canada and transition to new generation chipsets, partially offset by a decrease in data usage revenue generated from connected vehicle services.
  • We expect segment revenues to increase to $365 million in 2020, driven by increases in royalty revenues associated with certain new chipsets.
  • Equipment & Others segment contributed 4% of total revenue in 2019. This share is expected to go up to 5% by 2020.

 

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