How Sirius XM Stock Can Fall 50%

Sirius XM Holdings stock (NASDAQ: SIRI) has declined by about 60% this year, amid several challenges, including a sluggish recovery in the automotive industry and adverse advertising trends. Now we believe that Sirius stock is undervalued post the sell-off, with our fair estimate of the stock’s value coming at $27 per share almost 25% ahead of the current market price (Jan. 9) on account of the company’s low valuation. Sirius will have to focus solely on its content to compete with the bigger and more resourceful competitors to grow its business, which could turn the narrative around on the stock. See our analysis of Sirius XM’s Valuation. However, there are risks and there remains a decent chance that things could get worse before they get better. In fact, Sirius stock has fallen by about 24% over the last one month alone. In this analysis, we highlight how SIRI stock could fall over 50% from current levels to about $10 per share, considering three key metrics, namely revenues, net margins, and price-to-earnings multiple.

There’s No Guarantee Of A Revenue Rebound

The premium audio service provider is experiencing subdued revenue performance. In the first nine months of FY 2024, SIRI revenues fell 2% year-over-year (y-o-y) to $6.5 billion The revenue decline was driven by a 3% drop in subscriber revenue to $5 billion, a 1% growth in advertising revenue to $1.3 billion,  and flat equipment revenues at $233 million. Despite reaffirming its fiscal year 2024 revenue guidance of $8.675 billion, the company has downwardly revised its fiscal year 2025 revenue projection to $8.5 billion. Notably, the company’s business has exhibited limited growth over the past few years, with a notable decline of 0.6% in fiscal year 2023, marking its first-ever revenue contraction. That said, the company now anticipates two consecutive years of revenue decline (FY’24 and FY’25), underscoring the need for strategic initiatives to revitalize growth. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Why?

Falling Subscribers – Sirius XM follows a subscription-based business model, with 77% of its 2024 (so far) net revenue coming from predictable subscriptions, compared to 20% from advertising. This makes it more resilient to economic downturns, as advertising budgets are typically the first to be cut during weaker economic periods. However, if the larger source of revenue experiences a decline, it becomes a concern. Sirius XM’s total subscriber metric declined 2% year-over-year (y-o-y) to 33.2 million, including paid promotional subscribers, in the first nine months of FY 2024. That’s about 800k fewer subscribers than it reported at the end of 2021. This decrease can be attributed to lower vehicle conversion rates and increased vehicle-related churn.

Furthermore, the company’s subscriber base has been experiencing a downward trend since last year, decreasing from 34.2 million in FY 2022 to 33.9 million in FY 2023. This decline was largely due to slower growth in connected vehicle services as new vehicle purchases slowed amid high interest rates and increased competition from internet streaming apps. In stark contrast to Sirius XM’s declining user base, Sirius’ arch-rival Spotify experienced rapid growth, with its U.S. revenue soaring 18.6% y-o-y to $1.6 billion in Q3. Interestingly, this figure now surpasses the total revenue generated by Sirius XM’s entire subscriber base. To counter the increasing competition, Sirius XM launched a free ad-supported tier, but it has yet to yield significant results. On a positive note, Sirius XM’s monthly self-pay subscriber churn rate remains stable at 1.6%, aligning with its historical trends. Sirius XM has a strong track record of retaining its existing subscribers, but its future growth prospects depend on its ability to attract new customers – a challenge it is currently struggling to overcome. Moreover, the effectiveness of its free trial funnel has been waning, adding to the company’s growth concerns.

Acquiring New Subscribers is Key Hurdle –  Sirius XM’s long-standing partnership with Howard Stern, a mainstay on the platform for 19 years, is set to expire in December 2025. This looming deadline underscores the importance of securing deals with other popular podcasts to maintain the platform’s appeal. Stern’s exclusive presence behind Sirius XM’s paywall has also limited his exposure to younger generations, who are accustomed to accessing content freely. Sirius XM has recently expanded its podcast offerings through strategic partnerships, including agreements for Alex Cooper’s “Call Her Daddy” and the “SmartLess” podcast featuring Jason Bateman, Will Arnett, and Sean Hayes. Notably, these deals are non-exclusive, differing from the company’s exclusive arrangement with Stern.

Sirius is clearly on the back foot. While the company is keen to build momentum, there are challenges here. The company’s financial position remains a concern, with approximately $11 billion in debt. Also, Sirius XM has expanded its pricing strategy to attract new users, offering tiered options, including a $9.99/month music-only plan, add-ons for sports and news, and premium subscriptions with full channel access. With that said, the company must also navigate the risk of existing subscribers downgrading to lower-cost options, striking a delicate balance between growth and retention. Sirius XM’s Revenue is projected at roughly $8.5 billion for FY 2025 per consensus estimates and there is a possibility that sales could fall at a level of just about 2% per year to about $8.3 billion by 2026, due to the factors above.

Sirius Margins Can Contract Further

Sirius’ net margins (net income, or profits after expenses and taxes, calculated as a percent of revenues) fell from levels of about 15% in 2021 to about 13% in 2022 amid market share losses. However, net margins grew slightly to about 14% in 2023. There remains a possibility that margins could fall to about 9% in the near term.

Why?

Sirius XM’s efforts to attract a younger demographic and drive growth may weigh on its profitability. The company’s strategy involves acquiring popular podcasting brands, which could increase operating costs. Additionally, while cost-cutting measures have reduced customer service representatives, plans to invest in subscriber additions may lead to increased staffing costs. Furthermore, intensifying competition may force Sirius XM to offer deeper discounts, potentially eroding its margins.

How does this impact Sirius’ valuation? 

Now at the current market price of about $22 per share, SIRI trades at about 7x 2023 earnings and about 8x estimated 2025 earnings. SiriusXM is expected to report a loss in 2024, but this downturn is entirely due to a one-time, non-operational event: the conversion of Liberty Sirius XM Group tracking shares to common stock. If we combine the scenario we detailed above – which assumes an average of about 2% annual revenue fall between 2023 and 2026 with margins declining to about 9% – this means that net income could fall from about $1.3 billion in 2023 ($3.24 per share) to about $750 million in 2026 ($1.97), a 40% decline compared to 2023. Bad times make it easier to imagine worse times – and when that happens, things can spiral causing investors to assign an even lower multiple to Sirius re-assessing its recovery path. For example, if Sirius’ investors assign a multiple of 3x following its continued underperformance, this would translate into a stock price of roughly $10 per share.

What about the time horizon for this negative-return scenario? While our example illustrates this for a 2026 timeline, in practice, it won’t make much difference whether it takes two years or four. If the competitive threat plays out, with Sirius continuing to struggle to acquire new subscribers, there is a possibility of a meaningful correction in the stock. 

SIRI has had a poor run, with the stock losing value in each of the last 4 years. Returns for the stock were 0% in 2021, -8% in 2022, -6% in 2023, and -58% in 2024.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year 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.

While progress may take time, we firmly believe patience will be rewarded. With its monopoly in satellite radio services, valuable expertise, and presence in a growing market, this iconic company is poised for success. Our analysis indicates that a positive outcome is likely, albeit one that may require investors and customers to take a long-term view.

[1] Returns as of 1/10/2025
[2] Cumulative total returns since the end of 2016

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