Last week, satellite radio provider Sirius XM reported its second quarter financials, including strong subscriber numbers. For the quarter, the company had total net new subscribers of 516,000, bringing total subscribers to 34.3 million by the end of the quarter. This includes 264,000 net new self-pay subscribers, which now total 30.3 million. Self-pay monthly churn for the quarter was 1.6%, an improvement over churn of 1.7% in Q2 2019.

Total revenue for Sirius XM and its subsidiaries, including Pandora, was $1.87 billion for the period, a 5% decrease compared to $1.98 billion in Q2 2019. Subscriber revenue for the quarter was $1.6 billion, compared to $1.5 billion for the same period last year. Advertising revenue was $236 million, compared to $358 million in the second quarter of 2019. Equipment and other revenue were $25 million and $35 million, respectively, compared to $41 million each for the same period last year. Net income for the second quarter was $243 million, or $0.05 per diluted share, compared to $263 million, or $0.06 per diluted share.

“Sirius XM’s business during this challenging period has been resilient, and with improving results and visibility into the remainder of the year, I’m pleased to resume offering subscriber and financial guidance. Despite the incredible economic stresses brought about by the COVID-19 pandemic, our self-pay net subscriber additions grew by nearly 200,000 over the first quarter of the year, and we reported improved churn of just 1.6% per month with rising ARPU,” said Jim Meyer, CEO for Sirius XM.

“Although advertising revenue fell 34% in the quarter, substantial expense savings in SAC and other areas provided a complete offset, and we generated over half a billion dollars of free cash flow. We are investing in our business, our people, and external opportunities to position ourselves for future growth,” Meyer added.

Pandora highlights

Sirius XM acquired Pandora for $3.5 billion in an all-stock transaction that closed in February 2019. Here are highlights from this subsidiary’s performance for the second quarter of 2020:

• Advertising revenue was $211 million, a 31% decline, due to many advertisers either pausing or canceling their ad campaigns during the COVID-19 pandemic. Ad revenue has started to rebound, however. In April, it was down 41%, in May 36%, and in June 18%, compared to Q2 2019.
• Pandora had 59.6 million in monthly active users during the quarter, down from 64.9 million during the same period last year.
• Total ad supported listener hours were 3.3 billion.
• Average monthly listening hours per active ad-supported user grew 2.4% to 20.2, compared to 19.7 in Q2 2019.
• During the quarter, Pandora added 40,000 net new self-pay subscribers to its Pandora Plus and Pandora Premium subscription services, ending the period with a total of 6.3 million self-pay subscribers.
• Gross profit for the second quarter was $70 million, a 55% decrease over the same period last year.
• Gross margin was 21%, compared to 36% in the second quarter of 2019.

Impact of COVID-19

In addition to the declines in advertising revenue for both Sirius XM and Pandora, the company was impacted by COVID-19 in other ways. For example, automakers were forced to put their manufacturing on hold and many retail locations across the country were closed. This caused the decline of vehicle sales, which included Sirius XM-outfitted vehicles. While some of the manufacturing and auto sales have started to reopen, it is not known what long-term impacts this could have on the company.

“Against this background and these broad-based economic effects, the full extent to which the COVID-19 pandemic may negatively impact our business is still uncertain.  The scope of the effects of the COVID-19 pandemic on our businesses depends on many factors beyond our control, and the effects are difficult to assess or predict with meaningful precision both generally and specifically as to our Sirius XM and Pandora businesses,” said Sirius XM in its July 30 financial report.

“We remain focused on the well-being of our employees, customers and all those we serve while also taking responsive measures to adapt to the current environment.  We have undertaken and are generally in the process of making a diverse range of operational adjustments in response to the effects of COVID-19 pandemic.  We have taken actions to help ensure the continuity of our audio entertainment service through the COVID-19 pandemic, including activating our business continuity plans and implementing measures to enable employees to work remotely,” the company added.

Updated full-year 2020 guidance

Despite all the unknowns related to the pandemic, the company provided updated guidance for the full-year 2020:

• Sirius XM self-pay net new subscribers of approximately 500,000
• Estimated total revenue of $7.7 billion
• Adjusted EBITDA of approximately $2.4 billion
• Estimated free cash flow of approximately $1.6 billion

Sirius XM’s value has varied by pennies since the release of its second quarter financials, signaling that investors are neither impressed nor concerned with the company’s performance or future outlook.

Insider Take

As a B2B and B2C company, Sirius XM and its subsidiaries make money from entertainment, equipment and advertising. Not surprisingly, the entertainment side of the house weathered the second quarter nicely, while the equipment and advertising sides of the house took a hit. As the pandemic progresses into the third quarter, it is hard to predict how the company will fare, but it seems likely that we’ll see more of the same – the attraction and retention of subscribers and declines in both advertising and equipment sales.