This media giant has a lot to prove this earnings season.
Satellite radio was cool. Once. Howard Stern’s jumping to the platform from terrestrial morning show programming 20 years ago turned heads. Drivers scoring uninterrupted coast-to-coast access to commercial-free music through their dashboards was a game-changer. Auto dealers feeling incentivized to push free trial subscriptions of the novel but bar-raising service made the factory-installed receivers a hot accessory. Sirius XM Holdings (SIRI -5.65%) had it all. It’s now squarely a boring stock.
Sirius XM hasn’t posted double-digit organic annual revenue growth in more than 10 years. Its subscriber count peaked in 2019. Top-line results are declining for the third year in a row. If this music stock seems like a radio knob slowly fading to zero, you might want to consider pumping up the volume before the end of the month.
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Earning your respect
Sirius XM’s transformation from a high-flying growth investment to a stodgy value stock is easier to explain than to live through. The arrival of the connected car made it easy for anyone with a smartphone to seamlessly stream audio app content through their car stereo system. The pandemic kept our cars parked for too long, diminishing the value of a premium radio subscription. Tastes also evolved coming out of the shelter-in-place phase of the COVID-19 crisis, and Sirius XM failed to court young audiences by clinging to its more seasoned talent.
There are still some pretty good reasons to warm up to this satellite radio monopoly, and that should be evident when Sirius XM reports its third-quarter results on the morning of Oct. 30. Sirius XM is still generating 10-figure annual free cash flow and putting that money to work through buybacks and a dividend currently yielding 4.9%. The shares are trading for under 8 times this year’s projected earnings, a rare single-digit multiple for a consumer-facing titan with a still-healthy 33 million subscriber base.
What can Sirius XM offer on Oct. 30 to shift out of reverse on a stock that is down 14% over the past year? It can come through with an earnings beat after falling short on the bottom line in back-to-back quarters. Return to revenue growth. Maybe reiterate the record $1.5 billion in free cash flow it’s modeling for 2027. It’s already sprucing up its programming with fresh voices, but a little more can’t hurt. Sirius XM could have a lot to say this earnings season, and luckily for investors, it has the means to amplify its broadcasts.