One of the market's most contested battleground stocks a decade ago has become more of a sleepy historical landmark. Sirius XM Holdings (SIRI 0.33%) reported its first-quarter results on Tuesday morning. If you missed the news, it's because the country's lone satellite radio provider isn't as widely followed as it used to be.
Sirius XM's trading volume in April has been roughly a quarter of what it was in the same month back in 2014. The stock is trading essentially where it was a decade ago, and it's not the only thing that doesn't appear to be moving. Growth has stagnated for the once volatile media stock that was the ultimate meme stock before meme stocks were a thing. Whether Sirius XM will become a hot number anytime soon remains to be seen.
Cutting through the static
Revenue rose a mere 0.8% to hit $2.16 billion for the first three months of the year, as a 7% year-over-year increase in ad revenue was largely offset by a 1% decline in its more significant subscription revenue. If this seems uninspiring, there are two positives in the reframing process.
The first piece of good news is that analysts were bracing for just $2.12 billion on the top line, a 0.9% decline. The second nugget of positivity is that this is actually the strongest growth that Sirius XM has posted since the summer of 2022. Revenue was no greater than 0.2% or negative in each of the five previous quarters.
Net income rose 14% to $265 million or $0.07 a share, which was in line with expectations. After three straight quarters of double-digit percentage beats, analysts finally caught up to the bottom-line improvement at Sirius XM. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 4%, but free cash flow staged an 8% retreat.
In its heyday of revenue growth, Sirius XM's broadening appeal came primarily from car buyers switching from terrestrial radio to its premium satellite-beamed offering. Now, most people already have Sirius XM satellite receivers in their cars. They're either fans of the platform or not.
If they're not subscribers, they are either fine with local radio stations or have embraced the open playground of apps available to owners of connected cars. There is a market for Sirius XM, but it's not one that appears ready to press hard on the accelerator.
Sirius XM reaches 33 million total subscribers, a sizable audience but a thin slice of the roughly 280 million personal and commercial vehicles registered to U.S. drivers. However, self-pay subscribers decreased by 359,000 for the satellite radio provider in the first quarter, fueled by an increase in monthly churn to 1.7%.
Image source: Getty Images.
Turning the dial for growth
The $3.5 billion acquisition of Pandora in 2019 was supposed to give Sirius XM a streaming service as a faster-growing revenue stream, but that service has also languished under Sirius XM's watch. Self-pay subscribers to Pandora Plus and Pandora Premium declined by 64,000 during the quarter, clocking in at a total of 5.9 million at the end of March.
Like Sirius XM's flagship satellite business, ad revenue is helping make up for the slide in premium subscribers. The good news, in a sense, is that Pandora is more of an ad-supported model than the larger satellite radio business.
Sirius XM is reiterating its earlier guidance for all of 2024, and that's not a good thing following the first-quarter beat on the top line. It doesn't bode well for the balance of the year. Sirius XM's forecast for $8.75 billion in revenue in 2024 represents a 2% decline, widening the 0.6% dip in 2023.
Its first year as a publicly traded company of declining revenue will apparently not be its last. Despite the steps up in free cash flow and adjusted EBITDA in the first quarter, its reiterated guidance calls for flat growth in free cash flow and an eventual decline in adjusted EBITDA in 2024.
You can't say Sirius XM isn't trying. It's been returning money to its shareholders through aggressive buybacks and perpetually growing payouts. Its current dividend represents a respectable yield approaching 3.4%.
If you told Sirius XM speculators a decade ago that this would be a stodgy income investor holding, they would laugh in your face. The problem is that the company itself is struggling to get the last laugh here. This was supposed to be its time to shine.
Companies are calling employees back to in-office work, and gas prices have fallen considerably since peaking in the springtime of 2022. Folks are spending more time in their cars, but there hasn't been a spike in subscriptions.
The model had been sputtering for some time. You have to go back to the high-volume days of 2014 to find the last time Sirius XM posted organic double-digit revenue growth. Beyond the 3.4% payout, the payoff is that Sirius XM has faded to the point where it's trading for just 9 times trailing adjusted earnings. If it can hold firm on margins until it finds a new way to woo growth investors, it doesn't have to be the end of the dial for Sirius XM.
