Title: Should You Buy, Sell, or Hold Sirius XM Stock in 2025? A New Perspective
With a staggering 50% decrease in its stock price this year, Sirius XM's (SIRI 3.44%) management has shifted focus towards recovery strategies for the next financial year. Despite the setbacks, the company demonstrated resilience by completing a complex spin-off/reverse stock-split transaction with Liberty Media, gaining financial independence while incurring an additional $1.7 billion in debt.
The satellite radio service giant, also home to Pandora streaming music and a podcast network, is solidly profitable yet grappling with stagnant revenue growth. Let's delve into the reasons for considering buying and selling Sirius XM stock going into 2025.
The buy case
The buy argument leans heavily on Sirius XM's upcoming financial engineering and deleveraging plan. The Liberty Media split lowered the share count by 12%, while also increasing long-term debt to $10.6 billion. The company anticipates generating $1.15 billion in free cash flow in 2025, intending to utilize 70% to reduce debt, bringing down the leverage to 3.6 times by year-end 2025.
Free cash flow, a vital focus, is projected to grow to $1.5 billion by 2027. A significant portion of this growth is attributed to the decline in satellite capital expenditures (capex), which will fall from $300 million in 2024 to negligible expenditures by 2028. Concurrently, the company aims to reduce non-satellite capital expenditures from $450-$500 million in 2024 to below $400 million in 2026.
From an operational perspective, lean strategies are crucial to Sirius XM's survival. Leveraging its automotive segment, the company landed Toyota Motor on its wholesale three-year subscription program, bringing the entire automakers roster to nine. The company has also expanded pricing options to attract new users with various budgets.
Satellite capex
Adopting a more flexible pricing strategy, Sirius XM offers its $9.99 a month tier for music-only channels, and additional options for sports, news, and talk radio. Ultimately, Sirius XM rides on the promise of appealing to a broader audience, all while easing the burden of discounted rates.
$300 million
Embracing adtech, Sirius XM wishes to leverage its experience monetizing Pandora and its podcasts to enhance its satellite radio service. The objective is to eventually roll out addressable, integrated in-car advertising experiences.
$180 million
From a valuation standpoint, the stock possesses an appealing forward price-to-earnings (P/E) ratio of 7.9 based on 2025 analyst estimates, alongside an enterprise value (EV) to EBITDA ratio of 7.5.
$95 million
The sell case
$45 million
Although Sirius XM remains a consistent revenue generator, the company is not a growth powerhouse. Projecting revenue at apartment $8.5 billion and adjusted EBITDA approaching $2.6 billion in 2025, the company is set for a 2% decline in revenue and 4% drop in EBITDA. Fundamentally, Sirius XM struggles to retain subscribers, witnessing a 1% decrease in paid self-pay subscribers and a 2% drop in U.S. Sirius XM subscribers in 2024.
$0
Average revenue per user (ARPU) has shown a modest decline, affecting Q3 figures at $15.16 and $15.25 over the past nine months. Rising competition and altered marketplace dynamics may present challenges for Sirius XM to boost its customer base through new pricing plans.
The verdict
While Sirius XM lacks a captivating growth narrative, its compelling valuation and stable free cash flow presents opportunities for value investors. The company's commitment to deleveraging its balance sheet through aggressive cost savings and debt reduction strategies may prove beneficial to long-term investors, ultimately attracting capital to support further growth.
Investors considering purchasing Sirius XM shares may be attracted to its planned financial engineering and deleveraging efforts. The Liberty Media split and anticipated free cash flow growth could potentially reduce the company's leverage ratio to 3.6 times by 2025. With this strategy in place, the company aims to attract new users and ease the burden of discounted rates by adopting a more flexible pricing strategy and leveraging its adtech experience.
Despite these potential positives, investors should be mindful of Sirius XM's lackluster growth prospects. The company's revenue is projected to decline by 2% in 2025, and there are challenges in retaining subscribers and boosting its customer base. As a result, value investors might find opportunities in Sirius XM's compelling valuation and stable free cash flow, but they should also consider the risks associated with its stagnant growth and competition. When it comes to investing in Sirius XM, it's crucial to evaluate both the buy and sell cases to make an informed decision.
