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Wells Fargo Lowers 2022 And 2023 Forecasts For Sirius XM.

With new car sales still struggling, Wells Fargo has lowered its fourth quarter estimates for several key metrics for SiriusXM. In an earnings revision sent to clients Thursday, the investment firm says it now expects the satellite broadcaster to post 50,000 self-pay net subscriber additions in Q4. That’s a 19% reduction from its earlier call for 62,000 self-pay net subscriber adds.

Wells Fargo media analyst Steven Cahall says the revision is due to an auto market “that went from supply-side problems to now having slowing demand for cars and rising inventories. We remain bearish on a sustained meaningful recovery of auto sales over the next 12 months,” he says.

Wells Fargo is also lowering its full year 2022 self-pay net subscriber adds for SiriusXM from 247,000 to 235,000, a 5% decrease. That’s below the Wall Street consensus of 248,000 and compares with management’s guidance of “positive” net adds for 2022.

Cahall’s estimates are based on new car sales clocking in at 13.8 million in calendar year 2023, down from an earlier estimate of 14.6 million “to better reflect the weaker demand from lower consumer spending.” As a result, Wells Fargo is lowering its full year 2023 self-pay net adds for Sirius XM from 460 million to 270 million, a 41% haircut. That flows down to a revised 2023 revenue estimate of $9.11 billion, down from an earlier forecast of $9.15 billion and an earnings revision to $2.71 billion from $2.74 billion.

The firm’s outlook for subsidiary Pandora has also changed, due to “weakness in digital ads.” Fourth quarter revenue for the streamer is now expected to finish at $544 million, down from a previous estimate of $559 million, while full year revenue is inched downward to $2.08 billion from $2.09 billion.

“Our channel checks indicate that the ad market continues to weaken,” Cahall says, adding that the latest data from Standard Media Index shows the ad market fell 12% year-over-year in December after much smaller decreases in October and November. That has Wells Fargo revising its full year ad revenue growth forecasts to +1% for 2022 and -3% for 2023.

The one-two punch of SiriusXM entering a period of higher costs and a looming recession has Cahall predicting “things will get a bit worse before they get better.” And the combo of higher expense growth in digital and higher royalty fees will put pressure on the audio company’s margins, while higher costs from building new satellites and taxes will “negatively impact” free cash flow. Those factors have him lowering his free cash flow estimates for SiriusXM from $1.5 billion to $1.3 billion for 2023 and from $1.6 billion to $1.4 billion for 2024.

SiriusXM reports fourth quarter and full year 2022 financial results Feb. 2.

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