VALUATION HIGHLIGHTS

1. Advertising constitutes 77% of the Trefis price estimate for Sirius XM Radio's stock.
2. Equipment, Royalties and Other Revenues constitute 14% of the Trefis price estimate for Sirius XM Radio's stock.
3. Satellite Radio Subscriptions constitute 9% of the Trefis price estimate for Sirius XM Radio's stock.

WHAT HAS CHANGED?

1. Sirius FY 2024 Overview

In FY 2024, SIRI revenues fell 3% year-over-year (y-o-y) to $8.7 billion. The revenue decline was driven by a 4% drop in subscriber revenue to $6.6 billion, a 1% growth in advertising revenue to $1.8 billion, and a 6% decline in equipment and other revenues at $310 million.

Regarding subscription metrics, the company reported a decline of 2% year-over-year (y-o-y) to 33.2 million in total subscribers, including paid promotions in FY 2024. This decrease can be attributed to lower vehicle conversion rates. However, the self-pay churn rate has remained stable at 1.6% in FY'24, indicating that existing subscribers are being retained at a consistent rate.

2. Guidance for FY 2025

The company's management has already announced a lower 2025 investment plan to focus on the company's in-vehicle listening audience. As part of the plan, Sirius aims for an additional $200 million in cost cuts and thus forecasts an increase in free cash flow to $1.15 billion in 2025, up from $1.02 billion in 2024.

3. Sirius Seeing Annual Revenue Declines

The company saw disappointing 2024 results, characterized by declining revenue, subscriber numbers, and free cash flow. Sirius is facing a concerning revenue trend, with declines in FY'23 and FY'24, and another decline projected for FY'25, marking three consecutive years of revenue contraction. Furthermore, the company's 2024 subscriber base has contracted by approximately 5% since its peak in 2019.

4. Reverse Stock-Split in September 2024

Sirius XM Holdings conducted its 1-for-10 reverse-stock split on September 9. This means that shareholders of the stock received one share for every 10 shares they owned. Investors may view reverse stock splits negatively, as they often signal fewer shares and a short-term problem, but they can signal optimism in the longer term. It should be noted that Sirius XM was in no danger of delisting from the Nasdaq stock exchange. Rather, this move was likely done to increase the company's share price from the $3 to $6 range that it has been hovering in for years, to one that is more likely to attract institutional investors. The company reduced its outstanding share count from over 3 billion to around 339 million. It should be noted that the company's total market value remains the same post-reverse stock split, as the increase in share price offsets the decrease in share count.

Since going public, this is the first stock split in the company's history.

Shortly after the split-off, a subsidiary of New Sirius merged with Sirius XM Inc (formerly Sirius XM Holdings, "Old Sirius"), with Old Sirius continuing as a wholly owned subsidiary of New Sirius. These transactions now position New Sirius as an independent public company, fully separated from Liberty Media and renamed Sirius XM Holdings Inc.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Sirius XM's value that present opportunities for upside or downside to the current Trefis price estimate:

• Number of Sirius XM Subscribers: We currently forecast this figure to increase from 33.2 million in 2024 to about 36 million by the end of the Trefis forecast period. If subscriber additions accelerate and Sirius XM reaches a subscriber base of about 40 million by the end of the Trefis forecast period, there could be an upside of about 10% to the Trefis price estimate. This could happen if the company can further increase its penetration and success rate in new as well as used cars. On the other hand, if competition from Spotify and other radio/online audio streaming services further intensifies and the subscriber additions slow down to around 32 million subscribers from current levels by the end of the Trefis forecast period, there could be a 10% downside to the Trefis price estimate.


• Sirius XM's Average Revenue Per Subscriber: We currently forecast this figure to increase from $199 in 2024 to about $218 by the end of the Trefis forecast period. If more subscribers upgrade to a higher-priced tier and as a result, the average revenue per subscriber reaches more than $230 by the end of the Trefis forecast period, there could be an upside of about 5% to the Trefis price estimate.

BUSINESS SUMMARY

The satellite radio service provider offers channels comprising commercial-free music, sports, talk shows, news stations, and other channels in the U.S. Sirius XM radio channels are mainly available through receivers in automobiles but can also be accessed over the internet or through home stereos by using various accessories.

The firm's satellite radios are primarily distributed through automakers ("OEMs"), retail locations, and through their website. Sirius XM has ties with major automobile manufacturers such as Ford, GM, and Toyota. This helps drive its presence in the US automobile space. Additionally, satellite radio services are also offered to customers of certain rental car companies.

The firm's primary source of revenue is the subscription fee it charges customers for annual, semiannual, quarterly, or monthly subscriptions. Additionally, the company derives revenue from activation fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories, and other ancillary services such as weather, traffic, data, and backseat TV services.

As of December 31, 2024, our SiriusXM business had approximately 33.2 million subscribers.

SOURCES OF VALUE

Pandora Acquisition

Sirius XM completed the acquisition of Pandora for $3.5 billion in an all-stock deal in early 2019. Pandora was supposed to give Sirius XM a foothold in streaming and a way to consolidate two ad-supported platforms, but Pandora's audience has contracted in back-to-back years. As of Dec 31, 2024, Pandora and off platforms saw a 5% y-o-y dip in subscribers to approx 6 million.

Subscription fee

Sirius XM earns the majority of its revenues from the subscription fee it charges its subscribers. It offers various monthly, semi-annual, and annual plans to customers. The company also offers discounts on long-term subscriptions and on multiple subscriptions. As of now, the Sirius XM All Access package is available for $24.99 per month, and the other basic packages are available at $18.99 and $13.99 per month.

In 2024, the company introduced new plans and pricing options designed to attract and retain subscribers while enhancing the value of existing plans. These new prices start as low as $9.99 for new subscribers to the All-Music satellite radio package and provide consumers the ability to add a variety of content bundles to customize their package to fit their taste and budget.

Sirius XM in Cars

Sirius XM has contracts with nearly all major automobile manufacturers. Every year, the firm pays out a large amount to its OEM (original equipment manufacturers) partners to keep their radios flowing into the new car market, at around a 75% penetration rate. Of this 75% who buy a car with satellite radio, 39%-40% choose to keep it after the promotion trial runs out.

• General Motors:

  Sirius XM has a deal with GM which allows it to install its satellite radios in GM vehicles. This deal was valid through 2027, and GM increased vehicles equipped with Sirius XM to nearly all Chevrolet, Buick, GMC, and Cadillac vehicles beginning with the model year 2021. In addition, the company also announced a significant expansion of its 360L platform at General Motors, this should further drive penetration.

• Toyota:

  Sirius XM has a deal with Toyota which allows it to install its satellite radios on all Toyota vehicles in the United States. This deal is valid until 2028.
• Sirius XM is also a partner for companies like Volvo, Mercedes-Benz, Honda, Ferrari, Kia, Bentley, BMW, Volkswagen, Hyundai, and Mitsubishi.
• Many trucks, boats, and recreational vehicles include Sirius XM radios as a standard fit.

KEY TRENDS

Used car market becoming important for Sirius XM

In FY 2024, Sirius XM's penetration rate in the used car domain was around 50%. The used car market is becoming attractive for Sirius XM, and penetration could grow from current levels. This would present a strong opportunity for Sirius XM to exploit the used car market. The company expects used car trials to surpass new car trials in the foreseeable future and double in the next decade. These numbers suggest that the company is extremely confident about potential growth in the used car market.

Increasing competition

On-demand music streaming services are currently dominating the market, with Spotify being one of the leading players. Spotify is far ahead of its nearest rival Apple Music, and continues to add more subscribers - driven by expansion into new markets. Spotify boasting 675 million monthly active users in 2024, up 12% year-over-year. And they can satisfy all of the content needs that a person might have, whether it's music, news, sports, or podcasts. Further, connected cars that allow smartphone apps to stream seamlessly through Bluetooth should dampen the subscriber growth in premium-priced satellite-beamed platforms.

Ability to afford unique content

Sirius XM's business model is based on a subscription fee, and therefore, the company can afford unique and exclusive content that separates it from other radio services. The company will continue to sustain this ability and therefore, grow its user base. In 2024, the company migrated certain premium content and features to lower tiered plans to increase the value to subscribers of these plans in an effort to retain existing subscribers. For example, Music & Entertainment plan now includes more sports content and the Howard Stern channels, and Platinum plan includes the ability to access three simultaneous streams so subscribers can share access with family members.

Connected services

In addition to offering listening content through satellite radio sets factory-installed in cars, Sirius XM offers connected services to car manufacturers through its subsidiary Sirius XM Connected Vehicle Services Inc. The company provides an array of features to enhance safety, security, and convenience. These include remote and assist services, automatic crash notifications, easy access to maps, weather, restaurants, and points of interest, scheduling service appointments, repairs, etc. Currently, Sirius XM provides connected services to Acura, BMW, Hyundai, Honda, Infiniti, Jaguar, Land Rover, Lexus, Nissan, Subaru, and Toyota. With new car sales increasing steadily, connected services should provide buyers an incentive to subscribe to Sirius XM services, which should keep its growth running. Coupled with the huge opportunity in the used car domain, this paints a pleasing picture for Sirius XM's future.