Sirius XM (SIRI -0.58%) is undoubtedly a top name in the audio entertainment industry. It offers satellite radio services to subscribers and operates the Pandora streaming platform.
Despite being an innovator, its shares haven’t rewarded investors. The stock has significantly underperformed the Nasdaq Composite index by an incredibly wide margin in the past decade. Consequently, some investors might view this as a potential opportunity to make a purchase for their portfolio.
Is this media stock a no-brainer buy with $100 right now? Let’s take a closer look at Sirius XM.
Disappointing financial results
The company recently reported its financials for 2023, which can give investors key insights into the state of Sirius XM. Revenue totaled just under $9 billion for the full year, down less than 1% compared to 2024. This ends a long-standing streak of annual revenue increases for the business.
Lower advertising sales, coupled with the fact that Sirius XM lost 445,000 self-pay subscribers over the course of the year, were key forces that impacted revenue trends.
For what it’s worth, the company is profitable. Free cash flow (FCF) totaled $1.2 billion last year. It was down 22% versus 2022 but is forecast to rise in the years ahead as capital expenditures decline. And while the customer base declined, executives touted the low monthly churn rate of 1.5% last quarter. There are some positive signs.
Looking ahead, the management team expects sales to decrease again in the current year (by 2.2%, to be exact). An uncertain ad market was cited as a reason for the soft outlook.
But growing users is a priority. “On the self-pay net adds for 2024, we haven’t provided a specific number in guidance, as you know, but our plan is to improve net adds year over year,” CEO Jennifer Witz said on the Q4 2023 earnings call.
Focus on the bigger picture
It’s discouraging for shareholders to see declining sales from the businesses they own or are considering buying. I believe Sirius XM’s latest financials point to bigger issues the company is facing.
For starters, there is a ridiculous amount of competition in this industry. To be fair, Sirius XM is the only company in the U.S. that offers satellite radio. This would be an attractive quality if consumers had no other way to listen to their favorite music or other audio content on demand.
But there are a ton of options, from traditional radio channels to streaming juggernauts like Apple Music, Spotify, and Alphabet‘s YouTube. All provide entertainment over the internet. And their popularity probably helps explain why Sirius XM’s total subscriber count is the same today as five years ago.
Plus, these services are offered by companies that have far greater financial resources to invest in new technologies and customer acquisition. And many vehicles that are sold these days are compatible with these apps, diminishing the distribution advantage Sirius XM has by coming pre-installed in new cars. I think this reality puts Sirius XM on the back foot going forward.
I’m also not a huge fan of the company’s balance sheet. As of Dec. 31, 2023, Sirius XM had $9 billion of debt. That equates to about 50% of its entire market cap. This adds a tremendous amount of financial risk, particularly if macro conditions deteriorate.
Poor track record
Shares of Sirius XM have fallen 15% in the last five years (as of Feb. 5), a terrible track record that should be a bright red flag for investors. It’s easy to invest in stocks that have performed well in the past because there’s a good chance they will continue doing so in the future. But it’s hard to find reasons to be optimistic about this company.
The stock is relatively cheap, trading at a price-to-earnings (P/E) ratio of 16.1 today. That represents a sizable discount to the S&P 500‘s 22.1 P/E. While investors might be eyeing this media business as a potential turnaround play, based on the facts, Sirius XM looks like a classic value trap.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Spotify Technology. The Motley Fool has a disclosure policy.