Investors in Sirius XM have been on a wild rollercoaster ride with their stock holdings lately. Over the past three years, the shares have plummeted by more than 53%, while the S&P 500 has soared by 29% in comparison.
Once a magnetic attraction for consumers, the company has hit a stagnant phase with sluggish revenue growth. The burning question on the minds of long-term investors is – can Sirius XM reignite its top-line growth and profitability, or are its glory days already in the rearview mirror?
To unravel this puzzle, a deeper exploration of the business landscape is imperative. Let’s delve into whether management holds the key to a potential turnaround.
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Amidst a Sea of Rivals
Sirius XM navigates through two distinct business arenas: Sirius XM and Pandora/off-platform. While both offer content, their primary revenue streams diverge, necessitating a thorough comprehension of each.
Sirius XM boasts a diverse array of radio content spanning music, sports, talk shows, entertainment, and news programming. The lion’s share of its revenue stems from subscription fees, with this division contributing 76% of the company’s total revenue last year.
On the other hand, Pandora enables listeners to curate personalized playlists and enjoy music on the go via smartphones or the web. The bulk of its revenue flows in from advertising.
Yet, both entities find themselves in a fierce battleground, contending with competition from traditional radio stations offering free content, as well as streaming giants like Amazon Prime, Apple Music, Spotify Technologies, and Alphabet’s YouTube.
Growth on Hold
The Sirius XM segment has grappled with tepid top-line expansion. In the previous year, it witnessed a 1% dip in revenue, a trend that persisted into the first quarter this year.
Self-paid subscribers dwindled by 2% to 33.4 million, while paid promotional subscribers, who received complimentary subscriptions from automakers, nosedived by 7% to 1.8 million.
Forecasts paint a grim picture of a future decline in subscribers and average subscription fees, a concerning cocktail for Sirius XM’s flagship business.
The company anticipates total revenue this year to clock in at $8.75 billion, reflecting a dip of over 2% from the previous year.
Looming Challenges
Pandora’s performance has displayed shades of promise, with revenue climbing 7% to $495 million in the first quarter.
Top brass foresee further growth in advertising revenue. However, a shrinking subscriber base could exert pressure on its core advertising revenue down the line.
The crystal ball remains foggy on the economic front, with murmurings of an economic slowdown. A significant deceleration in economic growth would inevitably cast a shadow over overall advertising expenditure, likely denting Pandora’s revenue prospects.
Deciphering the Puzzle
Trading at roughly half the price-to-earnings multiple of a year ago, Sirius XM’s stock sports a P/E ratio of around 9 – a far cry from the S&P 500’s multiple of 28.
While this might lure in value investors, the intense competitive landscape coupled with dwindling revenues from its core business point towards a cautionary stance – steer clear of the stock or consider divesting if already vested.
Should Investors Roll the Dice with Sirius XM?
Before diving into Sirius XM’s stock, here’s a nugget to chew on:
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