Sirius XM (NASDAQ: SIRI), a leading provider of satellite radio, is scheduled to announce its fiscal third-quarter results on Tuesday, October 31. We expect Sirius XM stock to likely trade higher with revenue and earnings beating market expectations. In addition, its subscription revenue came in flat at $1.7 billion whereas ad revenue saw marginal declines y-o-y in Q2. Sirius stock had a rough start to 2023 and declined from $5.84 to $4.23 YTD, negatively impacted by headwinds in advertising and a delayed recovery in the auto sales industry. Pandora also continues to struggle to stabilize its monthly active users and total listening hours. In addition, the entire company remains heavily in debt at $9.4 billion. Despite all this, the media company benefits from a historically meager churn rate, with an implied average life for new car purchases of around five years – thanks to its solid business model. By taking advantage of the advertising reach it receives through radio, Sirius XM could likely push Pandora into podcasting for further growth opportunities. And, if we consider that SIRI stock now trades at 14x forward earnings with operating margins of 20% – the long-term price could see gains.
SIRI stock has suffered a sharp decline of 35% from levels of $6 in early January 2021 to around $4 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. SIRI has had a poor run, with the stock losing value in each of the last 3 years. Returns for the stock were 0% in 2021, -8% in 2022, and -28% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 8% in 2023 (YTD) – indicating that SIRI underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SIRI face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
For the full year 2023, SIRI mentioned that it expects total revenue of approximately $9.0 billion compared to a consensus of $8.99 billion and an adjusted EBITDA of approximately $2.7 billion. The company increased its FY 2023 free cash flow outlook to $1.15 billion from about $1.1 billion based on lower expected cash taxes and improved working capital (in the second half of 2023). As far as the ad market is concerned, the company expects y-o-y improvement in the second half of 2023.
Our forecast indicates that Sirius XM’s valuation is nearly $5 per share, which is 18% higher than the current market price. Look at our interactive dashboard analysis on Sirius Earnings Preview: What To Expect in Q3? for more details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Sirius XM’s Q3 2023 revenues to be around $2.3 Bil, marginally above the consensus estimate. SIRI revenue growth was flat year-over-year (y-o-y) in its second quarter of 2023 at $2.25 billion. In addition, its subscription revenue came in flat at $1.7 billion whereas ad revenue saw marginal declines y-o-y in Q2. However, total Sirius XM subscribers came in flat at 34 million in Q2 2023, while self-pay subscribers decreased by 132,000 during the same period. SIRI’s Pandora music streaming service also lost subscribers, with monthly active users at Pandora falling to 47.4 million in Q2 from 50.5 million a year ago. It should be noted that free cash flow fell about 26% to $323 million in Q2, driven by higher cash taxes paid and increases in satellite capital expenditures. The company has used its healthy free cash flows to repurchase 40% of its outstanding shares over the past 10 years. Of course, this trend could likely change with contracting cash flow as seen in FY’23 so far. For the full year 2023, we forecast Sirius Revenues to be $9.1 billion, up 0.6% y-o-y.
(2) EPS likely to beat consensus estimates comfortably
Sirius XM’s Q3 2023 earnings per share (EPS) is expected to be 9 cents as per Trefis analysis, higher than the consensus estimate of 8 cents. SIRI’s net income for the second quarter of 2023 was $317 million resulting in diluted earnings per share of $0.08, up from $0.07 for the same quarter of 2022.
(3) Stock price estimate higher than the current market price
Going by our Sirius XM’s Valuation, with an EPS estimate of around 31 cents and a P/E multiple of around 14.9x in fiscal 2023, this translates into a price of nearly $5, almost 18% higher than the current market price.
It is helpful to see how its peers stack up. SIRI Peers shows how Sirius stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-3%||8%||85%|
|Trefis Reinforced Value Portfolio||-5%||17%||501%|
 Month-to-date and year-to-date as of 10/27/2023
 Cumulative total returns since the end of 2016