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Sirius XM Holdings investors have faced turbulent times as the satellite radio titan struggles to find its footing. The stock’s alarming 55% decline this year has sparked concerns about the company’s ability to steer towards robust growth.
The silver lining is Sirius XM’s status as a leader in its category, with a massive audience exceeding 150 million listeners. The potential for the company to nail its strategy and capitalize on next-generation audio formats makes its stock a compelling, albeit risky, opportunity.
The Argument for Selling Sirius XM Stock
The media consumption landscape has evolved dramatically over the past twenty years, leaving Sirius XM grappling with the challenges of the audio revolution. Satellite radio has struggled to keep pace with the surge of streaming music alternatives.
While satellite broadcasting offers advantages over traditional radio, its relevance is overshadowed by the widespread availability of broadband and mobile internet. With smartphones offering a plethora of audio options, Sirius XM’s premium service becomes a tough sell.
Even with partnerships with global automobile manufacturers to incorporate Sirius XM in vehicles, the flagship radio service has been on a downward trend. From a peak of 34.91 million subscribers in 2019, the company reported 33 million paying users in the latest quarter, marking a decline of 100,000 over the past year.
The smaller streaming segment, Pandora, hasn’t fared any better, with a drop of 41,000 subscribers year-over-year, settling at 6 million paid users this quarter.
Financially, the company is also struggling. Revenue in Q2 fell by 3% compared to the previous year, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) remained stagnant. For the full year, a 2% revenue decline is expected, with a 3.2% drop in adjusted EBITDA anticipated for 2024. These figures underscore the fundamental challenges Sirius XM faces, giving investors ample reason to consider selling the stock.
The Case for Buying Sirius XM Stock
Despite the gloomy headlines, Sirius XM has some strong points worth considering. The company remains profitable and is expected to generate significant free cash flow, around $1.2 billion this year.
The strategy involves reducing debt and reinvesting in growth. A notable development was the completion of a split-off and merger transaction with Liberty Media on September 9, involving a 1-for-10 reverse stock split. This restructuring simplifies the equity framework, potentially enhancing strategic flexibility and shareholder returns. The stock also offers a 4% yield through a quarterly dividend, which management plans to maintain.
Though growth is lacking, Sirius XM enjoys stability backed by a loyal listener base. Instead of competing head-on with giants like Spotify in on-demand music streaming, Sirius XM focuses on curated content available via a stand-alone mobile app, separate from its in-vehicle satellite-radio product. The company targets a younger demographic, seen as more amenable to subscribing to multiple services.
The bullish perspective hinges on Sirius XM’s ability to expand its advertising revenue through high-profile podcasts and exclusive live sports broadcasts. With a forward price-to-earnings (P/E) ratio of 8, investors optimistic about the company’s future may view the stock as a potential bargain.
Decision Time for Sirius XM Stock
The myriad uncertainties surrounding Sirius XM are likely to keep its share price volatile. With the stock already losing over half its value this year, selling now might be too late, as many negatives are possibly priced in. However, the risk remains if conditions worsen. A substantial rally would likely require clear signs of improving sales and subscriber trends. Thus, a hold rating seems prudent for current shareholders, while new investors might consider staying on the sidelines for now.
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