Sirius XM Stock Forecast: A Monopoly Buffett Loves

Sirius XM Stock Forecast: For today’s consumers, personalization and customization are top priorities. They want products that match their interests and meet unique needs – especially when it comes to entertainment.

Television is trying to keep up, with hundreds of channels that cater to niche audiences. Despite the variety, there is still plenty of competition from the ever-more-specialized internet television and streaming video services.

Radio is no different, and the standard frequencies that once covered everyone’s entertainment needs, both at home and on the road, must now compete with custom streaming music services. There is one company that seems to have a secret formula for keeping audiences engaged: Sirius XM.

Subscribers sign up and stick, finding that the long list of listening options is enough to keep their attention hour after hour, month after month, and year after year.

Investors wonder if Sirius has peaked. Can it continue to attract and retain the number of subscribers necessary for future growth?

Satellite Radio vs Local Radio: How SIRI Wins 

Predicting satellite radio’s future depends on understanding the differences between satellite radio and traditional radio – and the benefits available from satellite services.

Essentially, local radio relies on long-established technology that was introduced in 1895. The first commercial radio station debuted in 1920, and thousands of local stations followed. In 2015, there were upwards of 15,000 licensed broadcast radio stations in the United States alone.

Local radio has a limited reach, depending on the power of on-the-ground transmitters. Satellite radio takes advantage of unused satellite frequencies to transmit from space.

This method offers significant benefits. In particular, the signal can be received nationwide, allowing transmitters to reach a wide audience in a matter of minutes.

The FCC established a nationwide satellite broadcasting spectrum in 1992, but it was nearly a decade before satellite radio was introduced to consumers. XM Satellite Radio launched in September 2001, and Sirius Satellite Radio came shortly thereafter in July 2002. Another satellite service, WorldSpace, entered the satellite radio scene around the same time.

The three providers promised customers better sound quality, cross-country range, and a variety of commercial-free entertainment options.

Of course, the tradeoff was cost. Local radio is supported by advertising, while satellite radio is supported by subscribers. All three companies struggled to attract and retain enough subscription income to keep the doors open.

Sirius and XM both faced bankruptcy in 2008, but they were able to stay afloat by merging the two organizations. Even still, the combined company came within days of bankruptcy in 2009.

WorldSpace wasn’t so lucky. In 2009, it went bankrupt and closed for good. Now, a decade later, where does Sirius XM [NASDAQ: SIRI] stand? And what’s the SiriusXM stock forecast?

Sirius XM Pandora: Growth Via Acquisition

Sirius XM [NASDAQ: SIRI] has surpassed 150 distinct channels, with offerings that range from 50s hits to current top 40 tracks.

There are comedy and talk radio channels, religious stations, and options that offer round the clock weather, traffic, and news.

In September 2018, Sirius XM announced it would acquire the popular streaming music platform Pandora for $3.5 billion. The deal closed in February 2019. Today, the combined company reaches more than 100 million people in the United States and Canada.

Sirius XM [NASDAQ: SIRI] leaders are committed to keeping up with consumer preferences, so there are a variety of ways to access programming.

Subscriptions still form the foundation of the business model, but there are also options for advertiser-supported listening, internet streaming, and mobile app access.

Is SiriusXM A Monopoly?

Sirius XM has what can only be described as a monopoly on satellite radio in North America, and there are no signs of blossoming competition.

Before the acquisition of Pandora, streaming music services did take some of Sirius XM’s target market, but that is less of a concern post-merger.

A few streaming services still have their share of subscribers, including Spotify and iHeartRadio, but consumers are as likely to use both as to choose one over another.

As a monopoly, it found its way onto the portfolio of famed investor Warren Buffett, who frequently bets on companies with little competition and lots of pricing power.

SiriusXM Pandora Stock Forecast

Sirius XM [NASDAQ: SIRI] share prices have been low for years, but that doesn’t mean the company is losing money. In fact, Sirius XM shows consistent profits quarter after quarter.

Shareholders have found that the small quarterly dividend is paid consistently, and it is gradually increasing. By all indications, the company will be able to sustain dividends in coming years.

There are several reliable advantages that indicate Sirius XM will continue its gradual upward trajectory. First, monthly subscriber churn is just 1.7 percent. That is remarkably low for an easy-to-cancel subscription entertainment service.

In comparison, Netflix’s churn rate is estimated at between 9 percent and 11 percent.

Attracting and retaining subscribers is key to Sirius XM’s success, because the company has high fixed costs – but extremely low incremental costs as new listeners are added. This has resulted in a 4 percent increase in average revenue per user over the past year – a rate that is likely to rise further.

Is Sirius XM a Buy?

Current investors don’t generally remember Sirius’ stock price peak. In 2000, it was over $60 per share.

Of course, when bankruptcy seemed to be inevitable, prices hit their all-time low of just over $0.30 per share. In the years that followed, stock prices drifted up very gradually, and they finally broke the $6 per share threshold in 2019.

Today, analysts say that the company is likely to continue its upward trend, with some projecting prices over $8 per share in coming months.

If they are correct, investors will enjoy a 28 percent increase in value. While that upside is certainly not a sure thing, there is no reason to believe Sirius XM [NASDAQ: SIRI] will lose ground. Investors are likely to see at least a small gain if they choose to buy now.

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.