Sirius XM stock (NASDAQ: SIRI), a leading provider of satellite radio, posted a substantial rally in May and early June, setting a 52-week high of just about $8. However, profit-taking soon set in and shares came well off that level. While the stock has been range-bound around $6 since then – except for some intraday jump (to near $7) post strong Q2 results and raised guidance – we expect the company’s stock to still see further gains. The company’s current P/S multiple of 3.5x could likely see an upward revision closer to its historical multiples in the medium to long term. With momentum starting to turn positive for the auto industry, the company looks poised for long-term growth due to its low valuation and acquisition-driven growth strategy. Sirius XM’s stock is already about 22% higher than it was at the end of 2017. Our dashboard, What Factors Drove 22% Change in Sirius XM Stock Between Fiscal 2017 and Now?, provides the key numbers behind our thinking, and we explain more below.
While Sirius XM enjoys a 77% new car penetration rate – as the majority of its revenues come from car-installed subscriptions, the company is also looking into growth through other forms of audio entertainment such as music and podcasts through synergistic acquisitions.
Some of this growth since 2017 is justified by the roughly 50% increase in Sirius XM’s revenues from $5.4 billion in 2017 to $8.1 billion in the last twelve months (LTM). It should be noted that a 35% year-over-year revenue growth in 2019 was largely due to the acquisition of Pandora’s business. In addition, revenue per share was higher by 59% between 2017 and LTM. Despite acquisitions and stock option grants, Sirius XM has been able to reduce its share count by nearly 5% over this period. Finally, Sirius XM’s P/S ratio declined about 20% from 4x at the end of 2017 to 3.2x at the end of 2020. The company’s P/S is now around 3.5x, and could potentially see a retracement upward – closer to its historical levels.
So how has Coronavirus impacted the stock?
The satellite radio company benefited from strong auto sales and dramatic ad growth in Q2. For context, Sirius XM revenue grew 15% in Q2, driven by a 4% increase in the company’s average revenue per user (ARPU) to $14.57 and a 3% increase in Sirius XM self-pay subscribers. Ad revenue jumped 82% compared to last year and topped 2019 levels by 19%. In addition, churn was low in Q2, coming in at 1.5%.
Sirius XM’s self-pay subscribers reached a record high of 31.4 million at the end of June. The company expects self-pay net subscriber additions of approximately 1.1 million for the full year 2021. It added 355,000 net new self-pay Sirius XM subscribers to its rolls through the first six months of this year, so it expects that pace to accelerate through the final six months of 2021. The company expects the total revenue to come at approximately $8.55 billion as compared to the consensus estimate of $8.42 billion. It also increased its 2021 goals for adjusted EBITDA to grow to approximately $2.675 billion. Further, Sirius XM expects to generate $1.7 billion in free cash flow this year, returning more than that to its investors through buybacks and growing quarterly dividends.
It is helpful to see how its peers stack up. SIRI Stock Comparison With Peers shows how Sirius XM compares against peers on metrics that matter.