In many ways, Sirius XM Holdings (SIRI -0.94%) is an edgy rock band that has gone mainstream. Sirius XM used to be a darling for speculators, screaming fans who would cheer its every uptick and downtick. The satellite radio provider has sold out now.
Its growth is as pedestrian as it is predictable. Back out the acquisition of the Pandora streaming service that artificially inflated top-line results in 2019, and Sirius XM investors have been treated to eight consecutive years of single-digit organic revenue growth. The upside to the boring turn is that the media stock is consistently profitable.
Sirius XM has rattled off 13 consecutive years in the black, the kind of reliability that may be boring to its early fans but is what sells out arenas and stadiums in this investing climate. Unfortunately, for Sirius XM Shareholders, the stock is playing to empty halls. Sirius XM shares hit a new seven-year low last month. If it has a chance to turn things around, investors don't have to wait long for the next big test. Sirius XM reports its first-quarter results on Thursday morning.
Hungry for another hit record
There are things worse than single-digit revenue growth. Sirius XM's guidance calls for $9 billion in revenue this year, flat with where it landed in 2022. The other two components of Sirius XM's full-year outlook -- adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of roughly $2.7 billion and $1.05 billion in free cash flow -- are well below last year's results.
The reversal isn't necessarily permanent, but it will sting in the near term. Sirius XM isn't trading at its lowest levels since early 2016 -- despite kicking off the year with a record 32.4 million self-pay subscribers and churn near its historical lows -- by accident. Sirius XM's guidance implies that its self-pay subscriber count will decline this year. Investors already saw that happen with the Pandora streaming service in 2022. Pandora was supposed to be a catalyst for growth, a digital escape hatch the moment that satellite radio would prove transitory and eventually obsolete.
Thursday's report will be challenging. Analysts see a 0.7% decline in revenue for the first quarter. Earnings of $0.07 a share would be a small step down from the $0.08 a share it clocked in with a year earlier. Normally, investors hope for a beat, but in this case, it could be a matter of just hoping that things aren't worse.
Image source: Getty Images.
The growth catalysts just aren't there. Paying a premium for satellite radio isn't very compelling in this climate, where inflation and interest rates are gnawing away at discretionary income. A connected car offers cheaper alternatives. The advertising market has also been in a slump since recessionary fears began heightening. Sirius XM has fallen short of Wall Street's profit targets in two of the past three quarters, and Thursday's financial update might not provide any relief.
The silver lining here -- as Sirius XM plays old hits to a thinning room with no one calling for an encore -- is that the valuation is surprisingly cheap. Sirius XM is trading for less than 12 times trailing earnings. The stock has fallen to the point where its once puny dividend now amounts to a respectable 2.6% yield.
Put another way, the upside may seem limited heading into the media stock's report this week, but the downside could also be limited if it's a disappointing performance. The beat remains the same, even if this isn't likely to be a beat on Thursday.
