If there ever was an ideal time for Sirius XM Holdings (NASDAQ:SIRI) to silence its critics, it could very well be this week. The satellite radio giant reports financial results ahead of Wednesday's market open, and the stock could use a boost. Sirius XM has shed more than 20% of its value since peaking in June. The stock has dipped below $6 this month, something that we haven't seen since February.
A volatile market isn't helping, but the stock's biggest hit came late last month when Sirius XM announced that it would be buying the 85% of Pandora (NYSE:P) that it doesn't already effectively own in a stock deal initially valuing the streaming service operator at $3.5 billion. Sirius XM's market cap has taken a $4.2 billion hit since then, insane when you consider that it was offering less than $3 billion in stock for the balance of the shares it didn't own.
Wall Street's cooling on Sirius XM. There's nothing like a strong earnings report to turn that sentiment around.
The clock is ticking
Growth is slowing at Sirius XM, explaining why it was willing to risk its near-term stock price by making the seemingly unpopular move of paying a premium to snap up Pandora. Analysts see revenue of $1.46 billion for the third quarter, a record showing but a modest 6% year-over-year advance.
Sirius XM's healthy profitability streak should continue, but the $0.06-a-share profit that Wall Street's modeling is the same thing it earned in three of the past four quarters -- including last year's third quarter. Meeting or slightly exceeding analyst estimates has been a calling card for Sirius XM in the past, and there really shouldn't be too many surprises in the media giant's rearview mirror.
Investors will want to see how the future will play out before deciding which way to send the stock on Wednesday. Will Sirius XM boost most of its guidance metrics like it did last time out? Will it do a better job this time in selling investors on the merits of its Pandora acquisition?
Sirius XM is starting to think out of the satellite-receiver box, and that finds it making a bigger push into the competitive streaming market. Pandora should help it stand out, as should its recent deal to stream through Alexa-powered gadgetry. Wednesday will be the perfect opportunity to convince investors that it's about more than just its maturing satellite radio monopoly. A strong showing can snap this 20% correction, but there's also some downside risk if Sirius XM fails to sell the market on its media strategy.