Is SiriusXM Stock A Buy?

Sirius XM Holdings Inc (NASDAQ:SIRI) is an American broadcasting company viewed as the future in the 20th century. But the 2000s, internet streaming and connectivity clearly moved a different direction, and the two satellite radio leaders (Sirius and XM) merged to create a single entity strong enough to survive in the new technological world.

Is Sirius XM stock a buy in the age of autonomous vehicles and virtual work?

The company has no competition in satellite radio, but it faces a tidal wave of competition in music and audio streaming.

Spotify Technology SA (NYSE:SPOT), Apple Inc (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN) are just a handful of the technology giants looking to elbow their way into SiriusXM’s market.

Still, its original content is enough to keep about 35 million subscribers on its platform. But is that enough to justify investing especially when its user growth is stale?

SiriusXM Was Once On The Brink Of Failure

Both Sirius and XM began in 1990 when the Federal Communications Commission (FCC) established the first-ever licensing rules for satellite digital audio radio service (SDARS) frequencies. Each individual company raised over $1 billion in funding to launch satellites into orbit and start their respective services.

By 2008, the companies underwent a $13 billion merger that gave the new company a monopoly on satellite radio frequencies. The National Association of Broadcasters (NAB) vehemently opposed the merger, although it brought the company to the brink of Chapter 11 bankruptcy while its stock bottomed out at $0.05 per share.

From that point, it went on a solid run of gains over the next 11 years to gain over 100x value in that time. However, the pandemic (and the year leading into it) proved turbulent for its investors, as much of its subscriber base comes from free trials given out with new car sales, which stalled with the pandemic.

Of course, satellite radio is just one piece (albeit a major one) of the company’s full business and revenue streams.

What Companies Does SiriusXM Own?

SiriusXM is more than just a satellite company – it also owns streaming music company Pandora Media, podcasting company Stitcher Radio, and Automatic Labs. Together this creates an army to compete with better-capitalized tech titans, along with smaller rivals like Soundcloud and iHeartMedia Inc (NASDAQ:IHRT), which runs terrestrial radio.

It also owns 32.1 percent of Sirius XM Canada, which is a separate company operates as the company’s Canadian affiliate. The service is the exclusive home to Howard Stern, along with shows like TODAY Show Radio, Joel Osteen Radio, and branded artist stations from the likes of Eminem, Pitbull, Diplo, and Garth Brooks. Megyn Kelly and Seth Rogen are among the big names joining to podcast here instead of rivals like Apple (AAPL) or Spotify (SPOT).

The company itself is majority owned by Liberty Media (NASDAQ:LSXMB), which owns about 72 percent of outstanding shares. This means you could invest in SiriusXM by investing in either stock, so should you buy SIRI?

Siri Adds 350,000+ Subscribers

SiriusXM is one of the best performing stocks of the 2010s, but expectations weren’t very high. That said, the company continues growing revenue, bringing in $2.16 billion in revenue in the second quarter of 2021. 

This is a 15 percent increase from the prior year’s quarter, and the additional 355,000 paying subscribers is a 34 percent year-over-year increase. The performance inspired the company to raise its full-year subscriber and financial guidance.

It’s a volatile stock though, and this is likely to continue over the next decade as the company finds its foothold in the social audio wars. However, its steadily rising cash dividend pays a healthy $0.059 per share, which is a great payout for a stock trading in penny stock levels.

SiriusXM Buyback Plan Is Aggressive

SiriusXM has two business segments: SiriusXM and Pandora. Its SiriusXM revenue accounted for $1.64 billion of the quarterly revenue quoted above. The remaining revenue came from advertising and paid Pandora Plus and Premium subscribers, which total 6.5 million today.

The company generated $4.21 billion in revenue in the first half of 2021, compared to $3.82 in the first half of the prior year. Operating expenses also grew, but net income of $652 million for the 6-month period is still promising when compared to the $536 million earned in 2020.

Its total assets of $11.20 billion is still heavily outweighed by liabilities of $13.71 billion. However, the company has an aggressive stock buyback plan that reduced shares by 39 percent since 2012, with another $2 billion in buybacks authorized this year.

This leads the SiriusXM to issue guidance of about $8.55 billion in total revenue and $1.7 billion in free cash flow for the year. That could translate to plenty of upward growth for today’s investors, but there are hiccups.

The biggest problem facing SiriusXM is competition – although it has a monopoly on satellite radio, the technology has a lot of rivals. The crowded audio market is getting even more crowded as companies like Twitter, Facebook, LinkedIn, and Reddit mull social audio tools for their communities.

SiriusXM needs to continue spending heavily to diversify and strengthen its content offerings if it wants to retain a competitive moat.

Is SiriusXM Stock A Buy? The Bottom Line

SiriusXM was one of the best-performing stocks of the 2010s, but it has stalled recently. In its favor is an aggressive share buyback plan that has likely attracted Buffett and Berkshire Hathaway. It has a steady dividend and is integrated into new cars, which provides a dependable marketing avenue to lure paid subscribers.

However, it’s operating in a crowded and expensive market, and its streaming service Pandora still lags rivals like Soundcloud and Spotify. This is happening as social audio breathes new life into podcasting. Invest with caution.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.