Sirius XM Stock: Buy, Sell or Hold?

Sirius XM Holdings (NASDAQ: SIRI) investors scrambled to lock onto a signal from the satellite radio giant. Shares are down 55% this year amid disappointing results, with concerns about whether the company can turn the dial toward stronger growth.

The good news is that the company remains the category leader with an audience of over 150 million listeners across its platforms. The potential for Sirius XM to finally get its strategy right highlights the appeal of a stock with a significant opportunity to monetize next-generation audio formats.

Let’s discuss what investors should be doing with Sirius XM stock now.

The case to sell Sirius XM stock now

The way people consume media has changed rapidly over the past two decades. Unfortunately for Sirius XM, the company has been on the wrong side of the audio revolution, as satellite radio has largely fallen behind the rise of streaming music alternatives.

Recognizing the advantages of satellite transmission, especially compared to terrestrial radio, the technology seems redundant with the proliferation of mobile broadband. It’s been a tough sell for Sirius XM to convert listeners with its premium pricing when most people are already connected to the Internet via their smartphone, providing access to more audio options.

Despite partnering with global automakers to introduce Sirius XM as an in-vehicle audio option, the company’s flagship radio service has been in decline over the past few years. Compared to a record 34.91 million subscribers in 2019, the company last reported 33 million paying users in the second quarter, down 100,000 over the past year.

Trends on Pandora’s segment with smaller streams and other off-platform services were no better. Pandora’s 6 million paid subscribers last quarter were down 41,000 from a year ago.

Similarly, financials have struggled. Q2 revenue fell 3% year over year, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was flat compared to 2023. For the full year, the company expects revenue to decline by approximately 2% with an adjusted EBITDA. 2024 target at $2.75 billion, down 3.2%. These dynamics help explain the fundamental challenges facing the company. Investors who are skeptical that Sirius XM can orchestrate a turnaround have plenty of reasons to sell the stock.

The case for buying Sirius XM stock

It’s easy to get caught up in poor headlines, but it’s also important to consider the strengths of any prospect. Beyond the weak operating trends, Sirius XM remains profitable and generates significant free cash flow, expected to be around $1.2 billion this year.

The story continues

The plan is to reduce the debt position of the balance sheet and invest in growth. On September 9, Sirius XM completed its spin-off and merger transaction with Liberty Media which included a 1-for-10 reverse split. This means that stockholders received one new share for every 10 shares they owned.

The deal, announced last year, simplifies the equity structure and should give the now-independent Sirus XM Holdings group more strategic flexibility that can hopefully translate into improved shareholder returns. The stock yields 4% through a quarterly dividend that management plans to maintain.

The business is not growing as expected, but there is a sense of stability supported by a loyal listener base. Instead of trying to compete with bigger players like Spotify technology for on-demand music streaming, Sirius XM differentiates itself with cleaner content that is now available on a standalone mobile app separate from the in-vehicle satellite radio product. The company is banking on a growing younger demographic seen as more willing to spend on more services.

The bullish case for the stock begins with the company’s ability to expand advertising opportunities from its high-profile podcasts along with exclusive live sports broadcasts. With Sirius XM stock trading at a forward price-to-earnings (P/E) ratio of 8, investors who are confident that better days are ahead may consider buying the stock at what appears to be a bargain level.

Decision time for Sirius XM stock

My prediction is that the number of uncertainties surrounding Sirius XM will keep the stock volatile. With the stock already losing more than half its value this year, it’s probably too late to sell as many of the negatives are already priced in. The big risk is if conditions continue to deteriorate. At the same time, it will likely take evidence selling and accelerating subscriber trends for the stock to sustain a big rally. I think a hold rating makes sense for current shareholders, while investors on the fringes should avoid it for now.

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Dan Victor has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Spotify technology. The Motley Fool has a disclosure policy.

Sirius XM Stock: Buy, Sell or Hold? was originally published by The Motley Fool