SiriusXM Holdings, once poised to revolutionize the media landscape shortly after its launch nearly two decades ago, finds itself at a critical juncture in its journey as we step into 2024. As it grapples with fierce competition from streaming platforms such as Spotify—which dominate both audience size and market capitalization—SiriusXM has faced challenges in expanding beyond its primarily automotive market.
Recently, however, there’s been a significant turn of events for SiriusXM that might signal a potential turnaround for investors. The company recently underwent a substantial restructuring, culminating in a notable reverse stock split after Liberty Media’s spin-off of Liberty SiriusXM Holdings. This strategic move reduced the number of shares by approximately 12%, subsequently allowing SiriusXM to implement a 1-for-10 reverse stock split. By doing so, the share price was lifted out of the penny stock bracket, potentially paving the way for new opportunities.
In this transition period, SiriusXM’s management is expected to enjoy enhanced flexibility as Liberty Media steps back from direct oversight. The company reaffirmed its ambitious revenue projection for the year—anticipating $8.75 billion—and adjusted its EBITDA forecast to $2.7 billion. While it did reduce its free cash flow expectations from $1.2 billion to $1 billion to reflect costs associated with the spin-off, it also declared a quarterly dividend of $0.27, which corresponds to a competitive yield of 4.6%. Moreover, the announcement of a share repurchase program totaling $1.166 billion demonstrates SiriusXM’s commitment to leveraging its financial strength.
For many investors, reverse stock splits can evoke caution, historically viewed as a red flag signaling financial distress. However, SiriusXM’s situation appears distinctly different. While its stock price has hovered below $10 for several years—largely due to the over-issuance of shares during the 2008-2009 financial downturn—the company’s current financial metrics speak to a more stable and well-managed business structure. SiriusXM remains profitable, albeit with a need for growth, as it continues to target a leverage ratio of mid-to-low 3 times adjusted EBITDA, allocating its cash flow toward investments, debt repayment, and maintaining dividends.
Yet, not all developments have been positive. SiriusXM recently revealed a slight decline in revenue for the third quarter of the year, down 3% to $2.18 billion, alongside a reduction of approximately 100,000 subscribers, resulting in a total of 33.3 million—marking a year-over-year drop of 806,000 subscribers. The anticipated departure of high-profile host Howard Stern upon the expiration of his contract may also pose challenges ahead, especially as satellite radio gradually loses its allure to alternatives with integrated internet features.
Despite these headwinds, there remains a glimmer of hope for potential investors. SiriusXM possesses an attractive price-to-earnings ratio of 7, and its current dividend yield makes it a viable option for value and income-oriented investors. Should SiriusXM capitalize on its current situation by engaging in stock buybacks, there could be an opportunity for recovery, though investors must remain vigilant concerning subscriber growth and revenue sustainability.
Overall, if you’re contemplating investing in SiriusXM, it’s crucial to weigh its prospects carefully. While it may not have secured a spot on the list of best investment stocks identified by leading analysts recently, SiriusXM’s pricing and dividend potential could offer appealing opportunities, should it successfully navigate the competitive landscape and regain subscriber growth momentum.
As the market continues to evolve, staying informed and ready to adapt will be key for investors eyeing SiriusXM and its place in the future of audio entertainment.