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Sirius XM Has Fallen and It Can't Get Up

By Rick Munarriz - Apr 29, 2021 at 11:50AM

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The satellite radio giant slips after a mixed quarterly report. It's time for it to learn a new tune.

Winning streaks are fun, but they don't last forever. Last year, Sirius XM Holdings (SIRI 1.30%) snapped an amazing run of 11 consecutive years of positive stock returns.

The satellite radio giant's 9% dividend-adjusted slide in 2020 was inevitable. No stock keeps climbing -- even on an annual basis -- forever. It was just cruel timing for Sirius XM shareholders to prove mortal last year, when the markets were generally buoyant. 

Sirius XM could've embarked on a new winning streak in 2021, but a 4% slide on Wednesday after a poorly received financial update puts the heavily traded radio king of all media stocks back in the hole. Will it bounce back in 2021, or are we on the second year of a losing streak? Sirius XM was one of the hottest stocks for more than a decade, but with growth slowing, it has a lot of work to do if it wants to get back on track.

Dolly Parton appearing at a Sirius XM Town Hall radio interview.

Image source: Sirius XM Holdings.

Turning down the volume

Organic revenue growth has been on a slowing trajectory at Sirius XM for years. The Pandora acquisition that closed in early 2019 inflated results for a few reports, but now that we're back on an even playing field, the gradual deceleration is becoming clear again.

Revenue rose a mere 3.2% in 2020, but that also included the early stages of the pandemic, when Sirius XM experienced a net decrease in self-pay net subscribers. We weren't driving a lot during the shelter-in-place phase of the pandemic, and that naturally resulted in more people turning off their satellite radio subscriptions. 

Sirius XM's guidance for all of 2021 is for $8.35 billion in revenue, a mere 3.8% increase over pandemic-saddled 2020. After seeing its top line go from climbing 9.8% in 2016 and 8.1% and 6.4% in subsequent years before Pandora-spiked 2019 and pandemic-smacked 2020, investors have been hoping for growth of better than 4%. We're driving again in 2021, something that's evident given the recent uptick in gas prices. The economy is growing, something that should help drum up a surge in ad revenue as well as improve the platform's churn rate. Can Sirius XM break from this new run of a meandering stock price and top-line growth in the low single digits?

Wednesday morning's financial report wasn't all bad. Revenue rose 5.4% to $2.06 billion as strong growth at Pandora helped offset an uninspiring 2% increase in revenue at its namesake satellite radio stronghold. Sirius XM's adjusted profit of $0.07 a share makes this the third time in a row that it has landed just ahead of Wall Street's earnings target. 

Average revenue is inching higher, and the monthly churn rate for self-pay subscribers is improving. The problem here is that Sirius XM's total subscriber base, 34.5 million, is smaller than a year ago. 

Sirius XM is optimistic about its digital initiatives as a catalyst for growth, but this is a different game from satellite radio, where it shares the dashboard with nobody else. Digging deeper into its guidance, the $2.575 billion it's modeling for adjusted EBITDA for all of 2021 is level with where it was last year. The "approximately" $1.6 billion in free cash flow could fall short of the $1.66 billion it generated last year. 

There is still a lot to like in Sirius XM. It fared a lot better through the pandemic than many naysayers predicted in terms of clinging to its subscribers. A radio giant generating $1.6 billion in free cash flow after paying top dollar for the medium's top talent packs a lot of power. How well Sirius XM succeeds beyond the dashboard will go a long way toward dictating if it's able to start a new winning streak. Right now, investors have their doubts. 

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