One of the market's biggest winners over the past few years has been Sirius XM Holdings (NASDAQ:SIRI). The once speculative provider of satellite radio has grown up into a reliably rewarding media juggernaut. Sirius XM is consistently profitable, and the stock has moved higher every single year since 2009. It even pays out a small, yet steady, quarterly dividend.
The stock has been a 125-bagger since bottoming out nine years ago. While no one is expecting a similar return in the coming years, the ingredients are in place for Sirius XM to continue beating the market. Let's dust off the crystal ball and try to get a read on where the market darling of premium radio will be in five years.
Party like it's 2023
Sirius XM is in a good place now. It hit a new 12-year high earlier this month, and those ancient all-time highs came at a time when Sirius was on its own and with a lot fewer shares outstanding. In terms of market cap and enterprise value, Sirius XM has never been as valuable as it is currently.
The drag here is that growth is slowing. Revenue rose 8% in 2017. Guidance calls for a mere 5% in top-line growth this year, a historic low.
The days of double-digit revenue growth aren't over. Subscriber growth may be decelerating, but there's nothing stopping Sirius XM from milking more money out of its still-widening user base by introducing new services. We also can't ignore any possible buyouts along the way. Sirius XM isn't afraid of striking deals. It snapped up the connected-vehicle services business of Agero in 2013 to gain a foothold in telematics, and last year, it invested in a 19% convertible stake in Pandora Media (NYSE:P).
Without going too far out on a limb, Sirius XM will either own all of Pandora or none of it by 2023. If streaming continues to gain steam and Sirius XM isn't able to gain more traction on its own, why wouldn't it buy Pandora or another platform? If Pandora is able to cling to its still-sizable audience, it would make sense for Sirius XM to grow its position to a controlling stake -- if not an outright buyout. If Pandora's recent fade in popularity picks up steam, Sirius XM won't want to be left holding a 19% position.
Right now, Sirius XM lives and dies by the auto-sales market. Sirius or XM receivers come factory installed in most new vehicles, and Sirius XM is gaining momentum in the resale market now that so many used cars are being sold with inactive satellite radios. The only real surprise here is if things stay that way.
Sirius XM's well-heeled audience of 32.7 million subscribers -- and counting -- is consuming music and other audio content in emerging ways. From mobile devices to voice-activated Bluetooth speakers, entertainment is following us beyond the commute. Sirius XM will have to adapt, and that means being more than just a premium satellite-fueled platform.
If it plays its cards just right, Sirius XM will be everywhere. A Sirius XM subscription will cost a lot more in 2023 than it does in 2018, but it will cover so much more. Its growing vault of proprietary content should also open up opportunities to sell that content piecemeal domestically. Perhaps more importantly, however, Sirius XM will have a presence internationally where its satellite-based service isn't presently available.
The gains on a percentage basis won't be as juicy as they've been for the lucky investors who nailed the bottom in early 2009, but Sirius XM is positioned perfectly to thrive in a time where more and more people are willing to pay up for premium audio entertainment. Sirius XM should continue to beat the market, even if won't do it with the same ferocity and consistency as it has in the past.