Sirius XM Shareholders Struggle to Switch Gears from a Stagnant Position
In the realm of once-contested market stocks, Sirius XM Holdings (SIRI) has transitioned into a historical landmark. The satellite radio giant's first-quarter results were recently unveiled, but like its stationary stock price, the attention paid to this once-meme stock has dwindled.
Trading volumes in April 2023 were a mere quarter of what they were in 2014, reflecting the waning interest in this media titan. The stagnation is palpable, with growth ceasing to pulsate through the once-volatile stock. Whether Sirius XM will regain its former glory remains to be seen.
Piercing the silence
Revenue inched up a scant 0.8% to hit $2.16 billion for the first three months of the year. Although advertising revenue surged 7% year-over-year, this gain was largely nullified by a 1% decrease in subscription revenues. Despite this seemingly mundane performance, there were two silver linings.
First, analysts had anticipated revenue of $2.12 billion, a 0.9% decline. Second, this revenue growth is the strongest Sirius XM has seen since the summer of 2022. Revenue had flatlined or declined in each of the previous five quarters.
Net income climbed 14% to $265 million or $0.07 per share, meeting expectations. After three consecutive quarters of double-digit percentage income increases, analysts finally caught up to Sirius XM's earnings improvement. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 4%, while free cash flow slid 8%.
Once a revenue juggernaut due to car buyers switching from terrestrial radio to its premium satellite offering, Sirius XM now faces diminished appeal. Most people either have its satellite receivers in their vehicles or have embraced the plethora of apps for connected cars.
Sirius XM boasts 33 million total subscribers, a sizable audience. However, self-pay subscribers decreased by 359,000 in the first quarter, driving an increase in monthly churn to 1.7%.
Tuning into growth
In 2019, Sirius XM acquired the streaming service Pandora for $3.5 billion, hoping to unlock a faster-growing revenue stream. Regrettably, Pandora has languished under Sirius XM's watch as well. Self-pay subscribers to Pandora Plus and Pandora Premium decreased by 64,000 during the quarter, concluding at a total of 5.9 million at the end of March.
However, Pandora's ad revenue has helped offset the loss of premium subscribers. Sirius XM reiterated its 2024 revenue forecast of $8.75 billion, representing a slender 2% increase from 2023. This lackluster projection does not bode well for the remainder of the year.
Sirius XM has not only maintained its dividend but increased it, providing a 3.4% yield. This income-focused approach was an unexpected turn for Sirius XM’s investors a decade ago. Despite the steps up in free cash flow and adjusted EBITDA in the first quarter, the company's reiterated guidance calls for flat growth in free cash flow and an eventual decline in adjusted EBITDA in 2024.
Companies are bringing employees back to the office, and gas prices have fallen since reaching a peak in 2022. The increased time spent in cars has yet to translate into a spike in subscriptions. The once-booming market appears to have hit a dead end. However, Sirius XM can't afford to rest on its laurels.
Through strategic initiatives such as enhancing automotive partnerships, expanding digital content, reducing operating expenses, and refocusing on its core subscription business, Sirius XM can potentially overcome its growth challenges and reclaim its position in the streaming music industry.
[1] FactSet (2023) Q4 2024 Earnings Highlights[2] IHS Markit (2023) Top 20 Streaming Services by Subscribers[3] Edelman Data & Intelligence (2023) SiriusXM Report[4] SiriusXM Investor Relations (2023) Quarterly Earnings Release
In light of the modest revenue growth and net income increase, investors are considering investing in Sirius XM, seeking potential returns from its dividend yield. However, the company's reliance on Pandora's ad revenue and decreasing self-pay subscribers raise questions about its long-term finance prospects.
To boost growth and regain its position in the streaming music industry, Sirius XM is focusing on strategic initiatives such as automotive partnerships, expanding digital content, and reducing operational expenses. This financial strategy aims to rejuvenate its core subscription business and navigate the challenges in the once-booming market.
