Sirius XM Holdings (NASDAQ: SIRI) is one of those low-priced options. Despite the volatile markets caused by the COVID-19 pandemic, Sirius’ share price has remained relatively stable. Going forward, there are a few reasons why you should consider making an investment.
A brief background
Sirius XM Holdings is a popular satellite radio service that also owns online music streaming service Pandora Media. It acquired the latter at the beginning of 2019 in an all-stock deal worth about $3.5 billion. As well as the synergies this deal created, it has given some sort of diversification to Sirius’ business model. It also has major stakes in Stitcher, Simplecast, and SoundCloud.
In 2019, about 72.4% of its total revenue came from Sirius subscriptions, with Pandora advertising being the next biggest slice of income at 14.5%, followed by Pandora subscriptions at 6.1% and Sirius advertising at 2.6%.
Performance this year
In Q2, net subscriptions rose by 516,000 up to almost 34.3 million, a positive move as subscriptions makeup 84% of total revenue. Revenue was down 5% year-on-year for the period, with net income also being lower at $243 million. Advertising revenue did fall by 34%, but this was largely offset by savings elsewhere during the worst-hit quarter with the pandemic.
It was slightly concerning that the monthly active users for Pandora dropped to 59.6 million from 64.9 million in a year, with gross profit falling by 55% year-on-year.
Shifting auto trends could also have an impact on Sirius’ business. The company relies significantly on cars that have factory-installed receivers for content delivery. With consumer confidence in the auto sector falling even pre-pandemic and people driving less than usual these days, there is some cause for concern.
Is it a bargain right now?
Sirius’ share price certainly looks reasonable right now, with growth potential definitely evident. While there is now more competition in the ever-growing satellite radio industry and shifting trends, the sector is still expanding. Sirius is an entrenched leader in this industry, with Pandora representing the biggest potential area for growth as online music services rapidly grow every year.
The main advantage of Sirius XM as an investment is its dependable growth on an annual basis, which is one of the reasons why Warren Buffet’s Berkshire Hathaway is a fan of the company.
With free cash flow of $1.65 billion in 2019, as well as attractive return on capital and substantial recurring subscriber revenue, Sirius certainly possesses flexibility in these uncertain times. It is also currently trading at a fair price and is a mature company with growth potential going forward.
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Contributing Writer at MyWallSt
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.