SiriusXM said it expected slower growth in ad revenue as it dimmed its forecast for the year.
Weaker demand from traditional subscribers drove subscriber revenue down more than 3% from a year earlier in the third quarter. The lower-than-expected numbers led management to adjust their total revenue for the year down $75 million to $8.7 billion.
CEO Jennifer Witz pointed to a more saturated streaming ad market and a move away from traditional brand-building advertising, which the company expects to continue in the fourth quarter. The company also said it had fewer spots to sell podcast ads than expected.
“Our advertising revenue was softer than expected with lower demand due to a flood of new CV supply entering the market,” said Witz.
“Advertisers’ spending is shifting toward performance products, a truncated election cycle, and lower than expected podcast inventory,” she explained.
SiriusXM saw a steep decrease in net income in the third quarter, following the announcement of its merger with Liberty Media.
The satellite radio company reported a net loss of $2.96 billion, which it said was driven by a write-down of some of its business related to the Liberty transaction. That amounted to a loss per share of $8.74. Witz said the one-time charge of more than $3 billion, took into account the current price of SiriusXM shares, which have fallen sharply since January.
Total revenue dropped 4% to $2.17 billion year-over-year. The third-quarter report caught some analysts off guard.
“We expected the earnings to result in the company’s share price increasing in the public market (possibly materially), not decreasing as it has since the report thus far,” said Robert Routh, Managing Director at FBN Securities.
On the earnings call, analysts pressed executives on how the company plans to balance its new $9.99 in-car and in-app plans with its existing subscriber base. Questions about Howard Stern's Contract renewal and expected return on investment for podcast investments like Alex Cooper’s “Unwell Network” were also top of mind.
“There was always this strategy of getting to a point of math to supplement our ad sales business as digital advertising was shrinking and all that went with that,” said President of SiriusXM Scott Greenstein.
“Podcasts were the fastest growing digital audio for advertising demand, and we've seen that as recently as the fourth quarter. So at the time, many of the bigger shows had not settled into ad deals.”
Still, exclusivity deals with top podcasters were one bright spot.
“Even with a stagnating subscriber base, Sirius XM has ample room for advertising revenue growth, through better targeting and offering its podcasts on third-party platforms,” analysts from Morningstar Research said in a note following the call.
Looking ahead, analysts will be closely watching advertising numbers in the fourth quarter and strong subscriber numbers, as management doubles down on pricing strategies that will prioritize the expansion of their $9.99 bundle subscriptions in-car and on their digital app. The move, they say, will attract broader audiences.
"We are very encouraged by other results we saw in initial testing, which shows that after that post, trial, promotion retention is much higher because there's a lot more transparency, and consumers value the persistent, lower price point," said Witz on the new pricing strategy, which is focused on expanding their $9.99 bundle subscriptions in-car and on their digital app.