Sirius XM (NASDAQ: SIRI), a leading provider of satellite radio, is scheduled to announce its fiscal fourth-quarter results on Tuesday, February 2. We expect Sirius XM to beat the revenue and earnings expectations, driven by a boost in self-pay subscribers, which grew by 909,000 (3% year-over-year) to a record high of around 30.9 million people in fiscal 2020. This was, in part, steered by the acquisition of a minority stake in open audio platform SoundCloud, a leading podcast management platform Simplecast, and podcasting behemoth Stitcher in 2020. The expectation is that the new podcasting trend will boost the company’s current revenue streams and possibly add new ones. The satellite-radio purveyor’s financial reports were decent enough, showing stability on both the top and bottom lines throughout 2020. And, we expect this trend to continue into Q4 as well. The availability of a Covid vaccine, contract extensions with big partners like General Motors and BMW, and a five-year extension with the iconic morning show host Howard Stern will likely beef up the company’s growth prospects going forward.
Our forecast indicates that Sirius XM’s valuation is over $7 per share, which is above the current market price of around $6. Look at our interactive dashboard analysis on Sirius XM Pre-Earnings: What To Expect in Q4? for more details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Sirius XM’s Q4 2020 revenues to be around $2.10 Bil, marginally ahead of the consensus estimate of $2.07 Bil. The company became vulnerable due to the shelter-in-place orders early during the pandemic, which led to fewer subscribers to its platform which is mainly consumed behind the wheel. Considering diminished driving trends, sluggish new-car sales, and the recession – Sirius XM managed to grow its subscriptions by 1% year-over-year (y-o-y), and the total company subscriber count came in flat (due to a 7% decline in Pandora subscribers) so far. Subscriptions continue to generate more than 80% of the company’s revenues, suggesting that it is uniquely positioned among radio operators to survive tough economic conditions. While the company bought online radio master Pandora in order to boost its long-term growth in 2019, it ended up writing off $1 billion of Pandora’s $3.5 billion purchase price as a goodwill impairment charge. This indicates that the management will have to find other ways to boost the company’s growth.
(2) EPS likely to beat consensus estimates
Sirius XM’s Q4 2020 earnings per share (EPS) is expected to be $0.04 as per Trefis analysis, higher than the consensus estimate of $0.02. So far in fiscal 2020, the company’s net income rose 18% to $800 million, or $0.19 a share. For the full-year, we expect Sirius’ net margin to grow 12% y-o-y and reach 13.1% in fiscal 2020. This coupled with marginal growth in Sirius XM revenues, could lead to a rise of $200 million y-o-y in net income to $1.2 billion in 2020. All this, could result in a possible EPS increase from $0.20 in FY 2019 to around $0.23 in FY 2020.
(3) Stock price estimate 12% higher than the current market price
Going by our Sirius XM’s Valuation, with an EPS estimate of around 23 cents and P/E multiple of around 32x in fiscal 2020, this translates into a price of over $7, which is 12% ahead of the current market price of over 6.
Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year
While none of the financial metrics are quite impressive despite the 2020 subscriber count record, the company enjoys an enviable market position as the only satellite radio company.
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