On-demand Streaming Will Shrink Legacy Subscription Revenue Base

Key Takeaways

• Accelerating consumer shift to streaming and connected vehicles threatens Sirius XM's subscriber growth, retention, and addressable market.
  
• Escalating content costs and auto industry changes are pressuring margins and increasing risks to future earnings and customer acquisition.
  
• Sirius XM's strategic focus on podcast growth, flexible offerings, OEM integrations, ad tech, and disciplined costs strengthens revenue streams and supports stable long-term shareholder returns.

Catalysts

Operates as an audio entertainment company in North America.

• The accelerating shift toward on-demand streaming platforms such as Spotify, Apple Music, and podcasts continues to erode Sirius XM's traditional subscription-based satellite radio model, undermining both user growth and subscriber retention and putting sustained pressure on core subscription revenues.
  
• As a growing number of vehicles feature built-in internet connectivity, consumers are increasingly able to integrate competitive streaming services and free content rather than defaulting to paid Sirius XM subscriptions, which directly threatens both the company's subscriber base and future ARPU expansion.
  
• Younger generations are showing clear preferences for ad-supported, freemium, or entirely free audio content over paid satellite radio, shrinking Sirius XM's future addressable market and making long-term subscriber and revenue growth increasingly elusive as demographic turnover accelerates.
  
• Rising costs associated with securing exclusive content and maintaining premium offerings-intensified by the need to compete for talent across a fragmented and competitive audio landscape-are likely to outpace any top-line growth, driving net margins lower and limiting future earnings expansion.
  
• Heavy reliance on auto OEM partners for subscriber acquisition, especially in light of automakers' growing pivot to app-based infotainment and electric vehicles that bypass integrated satellite radio, exposes Sirius XM to material declines in new subs, reduced revenue, and elevated customer acquisition costs in coming years.

Sirius XM Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sirius XM Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sirius XM Holdings's revenue will decrease by 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -20.5% today to 14.3% in 3 years time.
• The bearish analysts expect earnings to reach $1.2 billion (and earnings per share of $3.51) by about August 2028, up from $-1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.4x on those 2028 earnings, up from -4.1x today. This future PE is lower than the current PE for the US Media industry at 20.7x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.27%, as per the Simply Wall St company report.

Sirius XM Holdings Future Earnings Per Share Growth

Risks

• Sirius XM's ongoing success in podcast monetization, highlighted by nearly 50% year-over-year growth in podcast ad revenues and expanding creator partnerships, demonstrates its ability to capture secular growth in the digital audio and podcasting sector, which could bolster both top-line revenues and advertising margins.
  
• The rollout of new, flexible subscription and ad-supported plans-like SiriusXM Play, targeting price-sensitive users and offering curated in-car and in-app experiences-expands the company's addressable market and may drive higher subscriber acquisition and recurring revenues over time.
  
• Enhanced in-car experiences and deeper OEM program integrations (such as the 3-year dealer subscriptions, expanding to more automakers and EVs), combined with ongoing improvements in used car data, are contributing to improved net subscriber adds and lower churn rates, supporting stability and potential growth in core subscription revenue and reducing downside risk to earnings.
  
• Strategic investments in advertising technology, AI-driven personalization, and programmatic ad capabilities are making Sirius XM's platforms more attractive to advertisers, potentially improving ad monetization and supporting recovery or growth in ad revenues even in a tough macro environment.
  
• Disciplined cost management, successful execution of a $200 million cost savings initiative, and strong ongoing free cash flow generation position Sirius XM to continue returning capital to shareholders via dividends and buybacks, directly supporting per-share earnings and providing long-term valuation support.

Valuation

• The assumed bearish price target for Sirius XM Holdings is $18.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sirius XM Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $18.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $8.3 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 5.4x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $21.42, the bearish analyst price target of $18.0 is 19.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.