One of this year's surprising losers is Sirius XM Holdings (SIRI 1.44%). Shares of the satellite-radio monopoly are trading 16% lower in 2020 through Thursday's close.
Sirius XM is having a rough year and it isn't a surprise. It's a satellite-radio provider in a pandemic. Considering diminished driving trends, sluggish new-car sales, and the recession, there are several headwinds keeping the media stock in check.
The real surprise here is that if Sirius XM closes out the year with a loss, it would be the first time since 2008 that shareholders don't achieve positive returns from the stock. There aren't too many other stocks out there with an 11-year streak of gains, but every winning run has to end sometime.
The good news here is that things aren't as bad as the stock price may have you think, especially after Thursday morning's better-than-expected earnings report. Let's take a closer look at Sirius XM's third quarter and the reasons why it's probably a good time to get excited about satellite radio, again.
Image source: Sirius XM Holdings.
1. Sirius XM's latest quarter didn't skip a beat
Sirius XM saw its revenue climb a mere 1% to hit $2.025 billion in its latest quarter, but this is actually a good thing. Analysts were bracing for a 4% decline after a 5% year-over-year dip in the second quarter. Sirius XM's top-line uptick is the handiwork of a growing base of self-pay subscribers who have been partly held back by a decline in ad revenue and the number of listeners on paid trial subscriptions. Weakness at its Pandora subsidiary also held back Sirius XM's growth for the period.
Things were kinder on the bottom line, with net income rising 11% to $272 million, or $0.06 a share. Wall Street was settling for a profit of $0.05 a share, making this the second time this year that Sirius XM beat the market's profit target. An earnings beat is always a good thing but can be even more encouraging when a stock is out of favor.
2. Guidance is finally inching higher, again
One of the things holding Sirius XM back in 2020 is that the marketplace got gloomier as the COVID-19 crisis started to take its toll. In early February, Sirius XM was hoping to add 900,000 self-pay net subscriber additions for all of 2020. By the time it stepped up with its first-quarter results in late April, it withdrew its guidance.
Three months after that, it dusted off its crystal ball but was only forecasting 500,000 self-pay net additions for this year. On Thursday, it bumped that tally up to 800,000.
Sirius XM's revenue goal has gone from $8.1 billion in January to $7.7 billion in July to what is now $7.875 billion. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) target that began the year at $2.5 billion before sliding to $2.4 billion nearly six months later, has now gone on to make up most of that difference. Sirius XM sees $2.475 billion in adjusted EBITDA -- and $1.6 billion in free cash flow -- for 2020.
Did Sirius XM really just bottom out in the second quarter of this year? Bears were arguing that it would be a long time before the satellite-radio giant would start taking baby steps in the right direction. But here we are with Sirius XM taking some big steps back to where it was pre-pandemic.
3. Howard Stern is close to coming back in 2021
CEO Jim Meyer won't be around in 2021, but content king Howard Stern is nearing a new contract. Meyer announced earlier this year that he would be retiring at the end of 2020. Sirius XM-lifer Jennifer Witz -- currently the head of its sales, marketing, and operations -- will replace Meyer.
There's always drama every five years as Stern nears the end of his five-year contract. He has always come back, and now we find ourselves 15 years into his reign of satellite radio with another contract negotiation.
"We are making significant progress in extending our relationship with Howard Stern," Meyer is quoted as saying in Thursday morning's earnings release.
You don't put that out there unless you're close, and all that remains to be seen is how much Stern will be paid and if this will be another five-year contract or a shorter term. Stern has earned the right to call himself the king of all media, but with Sirius XM turning the corner sooner than expected, it also has the right to be tapped as the king of all media stocks.
