Subscription Radio Will Suffer As Streaming Erodes Legacy Value

Key Takeaways

• Intensifying competition from streaming and changing consumer habits are eroding SiriusXM's subscriber base and threatening its long-term revenue stability.
  
• Dependence on automaker partnerships and industry shifts exposes SiriusXM to cyclical risks, margin pressure, and likely sustained declines in profitability.
  
• Strong core subscription performance, innovative pricing, disciplined cost management, and digital ad growth position Sirius XM for resilient revenue and earnings expansion despite industry challenges.

Catalysts

Operates as an audio entertainment company in North America.

• The widespread proliferation of on-demand streaming and podcasting platforms is steadily eroding the unique value proposition of SiriusXM's subscription radio offering, likely leading to sustained subscriber erosion and long-term revenue contraction as consumers increasingly favor flexible, personalized, and ad-free alternatives.
  
• The rapid rollout of 5G and improved internet connectivity in vehicles lowers barriers for competing audio platforms such as Spotify and Apple Music, raising SiriusXM's customer acquisition costs and making it increasingly difficult to retain or attract younger listeners, which threatens future growth, especially given recent negative streaming net adds.
  
• SiriusXM's heavy dependence on the auto industry, particularly new car sales and OEM relationships for bundled trial subscriptions, exposes its revenue and cash flow to substantial cyclical and structural risks; any long-term downturn or strategic shift by automakers could drive persistent subscriber losses and ARPU declines that cost-cutting cannot offset.
  
• With ARPU down 3% year-over-year and further pressured by the need to introduce discounted and ad-supported tiers for more price-sensitive consumers, SiriusXM risks margin compression and a declining earnings base as it fails to keep pace with intensifying competition and shifting media consumption habits.
  
• Industry-wide fragmentation of audio consumption across digital streaming, smart speakers, and podcasts is diminishing traditional satellite radio’s relevance, increasing content acquisition costs, and pressuring advertising revenue, all of which point to a structural headwind for SiriusXM’s business model and a high likelihood of declining profitability over the long term.

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 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -19.3% today to 13.9% in 3 years time.
• The bearish analysts expect earnings to reach $1.2 billion (and earnings per share of $3.4) by about July 2028, up from $-1.7 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 5.7x on those 2028 earnings, up from -4.7x today. This future PE is lower than the current PE for the US Media industry at 17.6x.
• 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 8.61%, as per the Simply Wall St company report.

Sirius XM Holdings Future Earnings Per Share Growth

Risks

• Sirius XM continues to demonstrate strong resilience in its core in-car subscription business, bolstered by low churn, high customer satisfaction, and successful execution of price increases with minimal subscriber loss, indicating the potential for sustained or even growing subscription revenues.
  
• The company is expanding its addressable market with the rollout of innovative pricing and packaging, including a new ad-supported subscription tier targeting nearly 100 million cars, which could unlock incremental revenue streams and boost net income as it ramps up in the coming years.
  
• Ongoing cost discipline and efficiency initiatives, with a target of $200 million in annualized savings by the end of 2025, are already yielding reduced operating expenses and providing upside potential for net margins and longer-term earnings growth.
  
• Sirius XM’s investments in exclusive content and technological improvements—such as expanded podcast offerings, cross-channel ad sales, and 360L product deployment—support higher average revenue per user, increased engagement, and resilience against competitive threats, which may enhance overall revenue.
  
• The company’s diversified and growing advertising business, especially in digital and podcasting formats with double-digit year-over-year growth, positions it to benefit from industry shifts towards digital advertising, supporting revenue and potential profit expansion despite broader economic uncertainty.

Valuation

• The assumed bearish price target for Sirius XM Holdings is $19.0, 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 $19.0.
• 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 5.7x, assuming you use a discount rate of 8.6%.
• Given the current share price of $22.93, the bearish analyst price target of $19.0 is 20.7% 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.