Sirius XM Holdings Inc.

Date: May 14, 2024.

Company’s Overview

Sirius XM Holdings Inc. (SIRI) reigns as the leading audio entertainment company in North America. They operate in the United States and offer satellite and streaming radio services, providing a vast array of music, talk shows, sports, and news channels to subscribers across their SiriusXM and Pandora platforms.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Despite its dominance in North American audio entertainment, Sirius XM faces some hurdles. The rise of free and ad-supported streaming services like Spotify and Apple Music puts pressure on subscriber growth and potentially squeezes prices. Retaining existing subscribers and attracting new ones in a crowded market (subscriber churn) can negatively impact their revenue stream. Emerging technologies or alternative delivery methods could disrupt their satellite radio model. Their reliance on car sales is a double-edged sword — free trials in new cars boost their subscriber base initially, but an auto industry downturn could significantly impact them. Finally, changes in government regulations regarding satellite radio spectrum fees or data usage could increase their operating costs.

Financial Performance

Company’s Revenues

Revenues from 2021 to 2023:

• Sirius XM Holdings annual revenue for 2023 was $8.953B, a 0.56% decline from 2022.
• Sirius XM Holdings annual revenue for 2022 was $9.003B, a 3.53% increase from 2021.
• Sirius XM Holdings annual revenue for 2021 was $8.696B, a 8.16% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Sirius XM Holdings annual net income for 2023 was $1.258B, a 3.71% increase from 2022.
• Sirius XM Holdings annual net income for 2022 was $1.213B, a 7.69% decline from 2021.
• Sirius XM Holdings annual net income for 2021 was $1.314B, a 903.05% increase from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Sirius XM Holdings 2023 annual EPS was $0.32, a 3.23% increase from 2022.
• Sirius XM Holdings 2022 annual EPS was $0.31, a 3.13% decline from 2021.
• Sirius XM Holdings 2021 annual EPS was $0.32, a 966.67% increase from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Sirius XM Holdings annual free cash flow for 2023 was $1.2B, a 23.32% decline from 2022.
• Sirius XM Holdings annual free cash flow for 2022 was $1.565B, a 2.8% decline from 2021.
• Sirius XM Holdings annual free cash flow for 2021 was $1.61B, a 3.48% decline from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

As of December 31, 2023, SIRI’s board of directors authorised the repurchase of an aggregate of $18.0 billion of its common stock.

The Company overall has decreased its shares outstanding by almost 40.71% from 2011.

Financial Strength

Their Asset-to-liability ratio of 0.80, this ratio should be at least 1, preferably higher. In Sirius XM’s case, a ratio of 0.8 suggests a very weak financial position. They have only $0.80 in assets for every $1 they owe in liabilities, leaving them with very little wiggle room for unexpected costs or strategic investments. This raises concerns about their long-term financial stability.

The current ratio which is 3.36 measures a company’s ability to meet its short-term obligations (due within a year) using short-term assets (cash, receivables). Sirius XM’s current ratio of 0.39 is very low and indicates they might struggle to pay their short-term debts on time. This could potentially damage their relationships with suppliers and creditors.

The Company’s net debt of $9.3 billion is a concern. The issue is twofold. First, a high net debt of $9.3 billion signifies a significant financial burden. Second, the fact that this debt level has increased since 2019 is a worrying trend. This rising debt could limit their ability to invest in growth initiatives or weather any economic downturns.

Valuation

Based on the analysis performed, SIRI’s price is fairly valued, showing a fair price of $2.73. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 3 buy, 0 overweight, 6 hold, 1 underweight and 4 sell ratings. The consensus rating leans toward hold.

Sirius XM Holdings presents a curious case for investors. Their financial performance is undeniably impressive, boasting healthy 10-year CAGRs for revenue (7.75%), net income (9.82%), and even free cash flow (1%). Their profitability reigns supreme with gross and net margins exceeding industry medians by a significant margin (48.19% vs 38.76% and 14.27% vs 4.2%). They’ve been efficient with resources, achieving a stellar 10-year EPS CAGR of 15.22% while reducing outstanding shares by almost 41% since 2011 (ROIC of 15.62%). The stock appears fairly valued with a P/E ratio of 9.36 compared to the industry median of 18.98.

However, their financial strength is a major concern. The asset-to-liability ratio of 0.8 indicates a very weak financial position, and a liquidity ratio of 0.39 suggests they might struggle to pay short-term debts. Most worryingly, their net debt of $9.3 billion has grown by 13% since 2019, further straining their financial health. While profitability is impressive, competition is on the rise, and their precarious financial situation could limit their ability to respond effectively. Investors seeking a financially sound company might want to look elsewhere.

However, those comfortable with higher risk for potentially high rewards might find Sirius XM an intriguing option, but thorough due diligence is crucial before making any investment decisions.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.