Will Sirius Stock See A Recovery After A 53% Fall This Year?

After a 53% fall since the beginning of the year, at the current price of nearly $3 per share, we believe Sirius XM stock (NASDAQ: SIRI), a leading provider of satellite radio, could see growth in the long-term but any short-term upside likely looks limited. SIRI stock has declined from $5.47 to $2.57 year-to-date, underperforming the broader indices, with the S&P growing about 12% over the same period. Notably, SIRI’s peer Apple (NASDAQ:AAPL) has seen its stock rise 2% to around $196 YTD. SIRI stock has traded at a low price in the range of $5- $7 due to a large number of outstanding shares (of around 4 billion) in the last five years. But the stock has been hovering around the levels of $3 since the beginning of last year (FY 2023) due to headwinds in advertising and delayed recovery in the auto sales industry. The company relies on promotional listeners that purchase new or used vehicles to become self-pay subscribers. With interest rates having risen significantly over the past two years, auto sales are slowing. Pandora is also struggling to stabilize its monthly active users and total listening hours. In addition, the entire company remains heavily in debt at $9.4 billion. Despite all this, the media company benefits from a historically meager churn rate, with an implied average life for new car purchases of around five years – thanks to its solid business model. And, if we consider that SIRI stock now trades at only ~8x forward earnings and with operating margins of 20%, we believe that the company’s stock has the potential to see long-term price gains.

SIRI stock has suffered a sharp decline of 50% from levels of $6 in early January 2021 to around $3 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. SIRI has had a poor run, with the stock losing value in each of the last 3 years. Returns for the stock were 0% in 2021, -8% in 2022, and -6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that SIRI underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SIRI face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

SIRI revenue grew marginally year-over-year (y-o-y) in its first quarter of 2024 at $2.16 billion, as 7% y-o-y gains in advertising were offset by slight declines in the subscriber revenue (which accounted for 78% of the total revenue in Q1). Despite its various entertainment channels, Sirius XM has struggled to grow its subscriber base. The overall SiriusXM self-pay subscribers decreased by 359,000 y-o-y in Q1 to 33 million, which was down from 34 million reported a year ago. In the off-platform segment, self-pay subscribers of Pandora Plus and Pandora Premium decreased by 64,000 y-o-y in Q1. Net income for the first quarter of 2024 was $265 million resulting in diluted earnings per share of $0.07, up from $0.06 for the same quarter of 2023. It should be noted that SIRI’s adjusted EBITDA came up at 4% y-o-y in Q1.

We forecast Sirius XM’s Revenue to be almost $8.8 billion for the full year 2024, marginally down y-o-y. Looking at the bottom line, we now forecast EPS to come at $0.31. Given the changes to our revenues and earnings forecast, we have revised our Sirius XM’s Valuation to around $3 per share, based on 31 cents expected EPS and a 9.9x P/E multiple for fiscal 2024 – almost 16% higher than the current market price.  For the full year 2024, SIRI mentioned that it expects total revenue of approximately $8.75 billion, an adjusted EBITDA of approximately $2.7 billion, and $1.2 billion in free cash flow this year.  

Sirius XM naturally suffered a setback due to the pandemic – with stay-at-home mandate at workplaces, instituitions and and family gatherings. Even with the return of normalcy at present, the company’s business has been stagnant, rather the company saw its first ever revenue decline in FY 2023. That said, Sirius will have to solely focus on its content in order to compete with the bigger and more resourceful competitors in order to grow its business.

It is helpful to see how its peers stack up. Check out how Sirius XM’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/6/2024
[2] Cumulative total returns since the end of 2016