SiriusXM Holdings (SIRI 0.19%) isn't exactly an investor favorite right now, and it's easy to see why. The satellite radio leader's subscriber base peaked in 2019 and isn't heading in the right direction, with a decrease of about 303,000 self-pay subscribers in the first quarter of 2025 alone. Plus, revenue has been falling recently, down by about 3% year over year in 2024. Profitability is also heading in the wrong direction, with free cash slow down by about 33% over the past two full years.
With the stock down by more than 60% since the beginning of last year, it doesn't seem investors have much faith in the company, either.
However, I have a bit of a contrarian take here. SiriusXM is a highly profitable business right now, and management isn't exactly sitting around doing nothing. With an extremely low valuation, now could be a smart time to take a closer look. In fact, I predict that over the next five years, SiriusXM will beat the S&P 500's total returns.
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A more efficient operation
The first phase of SiriusXM's turnaround plan was mainly focused on cost reduction, and after a couple of years, the company has done a great job in this area. In the first quarter, Sirius reported a year-over-year 19% decline in sales and marketing expenses, and a 15% decline in product and technology costs.
Between 2023 and 2024, SiriusXM achieved about $350 million in gross savings, and aims to reach $200 million in run rate savings by the end of 2025, and to continue to lower expenses in subsequent years. For example, satellite capital expenditures are estimated to be about $220 million this year, but less than half of that in 2026, which should greatly boost free cash flow generation.
Lots of opportunities to grow revenue
The cost-cutting initiatives have been impressive, but that's only one side of the turnaround efforts. In simple terms, it doesn't matter how efficient the company gets if it can't return to growth.
SiriusXM sees the ability to grow free cash flow to about $1.5 billion annually in the near term, which would be about 50% more than the current level. And there are several different initiatives that could help it get there.
For one thing, the company is getting a little more creative about the ways it sells subscriptions. Historically, SiriusXM would simply give new vehicle buyers a short trial, and hope they'd subscribe when it expires. This is certainly still part of it, but SiriusXM is trying several other ways to jump-start subscriber growth.
As an example, the company recently launched a three-year dealer-sold subscription as a new vehicle option and is seeing strong interest so far.
Although the automotive subscriber segment is the focus of the business, SiriusXM is also putting effort into boosting non-vehicle subscriptions, especially through bundles. It recently announced a new bundle of SiriusXM's All Access and the Fox Nation streaming service in app-only form for just $11.99 per month.
Advertising is another major opportunity that is starting to gain some serious traction. For example, SiriusXM recently rolled out a free ad-supported version of its service in certain new vehicles. Although Pandora, owned by SiriusXM, mainly uses an advertising revenue model, SiriusXM only gets 2.5% of its revenue from ads. In-car advertising is a largely untapped opportunity for SiriusXM at this point, but could potentially grow into a billion-dollar revenue stream.
Advertising is a major focus for SiriusXM right now, and if it can become a significant revenue driver, it would likely be a big win for shareholders. The company is doing a great job of investing in ad technology and recently partnered with AI company Narrativ to allow brands to produce high-quality ads in a cost-effective and scalable way.
A cheap stock with high total return potential
As I mentioned, the market isn't showing much faith in SiriusXM's turnaround plan. In fact, the stock trades for just over seven times forward earnings, despite excellent profitability and expected free cash flow growth in 2025. Not only that, but the company pays a generous dividend, with a yield of about 5% as of this writing, which is well covered by the company's earnings. Plus, the company started buying back stock in late 2024 and continues to do so, which could also help drive total returns.
To sum it up, while there's quite a bit of execution risk, SiriusXM has a solid plan, and is making all the right moves to capitalize on its opportunities. I recently added shares to my portfolio and believe this will be a market-beating stock over the next five years.
