One of the best-performing stocks over the past decade that's still trading in the single digits reports its latest financial results this week. Sirius XM Holdings (SIRI -1.59%) will announce its second-quarter numbers on Tuesday morning, and like most reports this season there's a lot at stake here.
Sirius XM is the lone provider of satellite radio in North America. The stock is nearly a 130-bagger since bottoming out at $0.05 -- yes, a nickel -- in early 2009. The stock would go on to deliver 11 consecutive years of positive returns before proving mortal in 2020. Growth was decelerating even before the pandemic made premium in-car services an easy luxury for consumers to do without, but Sirius XM has tried to flesh out its streaming offerings to provide value to its subscribers no matter where they may be. How will this week's important earnings report play out? Let's pop the hood to check on the state of Sirius XM's engine.
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All revved up with nowhere to go
Sirius XM topped 31 million self-pay subscribers at the end of March. It expects to grow its reach by 800,000 self-pay subscribers for all of 2021. It added 126,000 to its rolls through the first three months of this year, so it expects that pace to accelerate through final nine months of 2021.
The trend has been problematic when it comes to paid promotional subscribers, the total group that is currently less than 3.5 million users on free trials after buying new or used cars. Auto sales understandably stalled during the pandemic, but that trend is starting to improve as we claw our way out of the COVID-19 crisis.
Analysts predict revenue will climb 9% to $2.06 billion for the second quarter, which Sirius XM will make official before the market opens for trading on Tuesday. It would be Sirius XM's strongest organic top-line growth in four years. Back out the five quarters of double-digit growth following the completion of its acquisition of streaming music pioneer Pandora, and you have to go all the way back to the spring of 2017 to find a better year-over-year growth rate.
Investors shouldn't get too excited. The second quarter of 2020 was a dark time for a lot of companies, and for Sirius XM it suffered a rare dip in revenue with its top line sliding 5% for the period. The forecast calls for just a 4% increase from where Sirius XM was two years ago.
The news gets marginally better on the bottom line. Wall Street pros are targeting a profit of $0.07 a share on Tuesday, up from both the $0.06 a share it earned in the same period two years ago and the $0.05 a share it reported in last year's challenging quarter.
There is also something to be said about Sirius XM's voracious appetite for its own shares. Sirius XM has been feasting on buybacks, lowering its share count by 39% since the end of 2012. The board authorized another $2 billion in share repurchases earlier this month. Despite fears of the long-term viability of satellite radio and its ho-hum growth in recent years this is a money machine right now. Sirius XM expects to generate $1.6 billion in free cash flow this year, returning more than that to its investors through buybacks and growing quarterly dividends.
The aggressive approach to returning money to its shareholders matters. Revenue climbed a pedestrian 3% last year, but the ascent was a more palatable 7% on a per-share basis.
Sirius XM's heady growth days may be over, but it's still a media stock that's worth watching. It continues to grow its subscriber count during this era of connected cars that makes free or at least cheaper streaming apps more accessible during drive time. It is doing right by taking its money and investing it back in content, streaming tools, and -- of course -- returning gobs of it to its shareholders. With momentum starting to turn positive for the auto industry better days should be ahead for Sirius XM. Right now it just needs to make sure that Tuesday's report affirms that the satellite radio monopoly is driving in the right direction.
