Tesla And Rivian Partnerships And Cost Savings Will Drive Future Subscriber Engagement

Key Takeaways

• Expansion into new vehicle partnerships and streaming services aims to enhance subscriber acquisition, engagement, and reduce churn, supporting long-term revenue growth.
  
• Strategic content partnerships and advertising initiatives position SiriusXM to improve margins and capture growing ad revenue, boosting overall financial performance.
  
• Rising competition, conversion challenges, and economic factors pose risks to subscriber growth and revenue stability in both subscription and advertising markets.

Catalysts

Operates as an audio entertainment company in North America.

• SiriusXM is enhancing its subscription business by expanding its 3-year OEM subscription program and launching services in Tesla and Rivian models using their latest technology, which could lead to increased subscriber acquisition and supporting long-term revenue growth.
  
• The focus on developing streaming services and engaging 360L technology in vehicles aims to improve customer engagement and retention, likely enhancing long-term subscription revenue and reducing churn.
  
• The expansion of their strong podcasting network and advertising revenue, particularly in podcast and programmatic sales, positions SiriusXM to capture growing ad dollars, contributing positively to revenue growth.
  
• SiriusXM’s $200 million targeted cost savings initiative, alongside optimizing marketing expenses and capital expenditures, is expected to improve net margins and free cash flow through increased operational efficiency.
  
• Strategic investments in exclusive and premium content partnerships, such as sports and music, are anticipated to strengthen subscriber loyalty and engagement, potentially boosting recurring subscription revenue.

Sirius XM Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sirius XM Holdings's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -19.1% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $3.07) by about April 2028, up from $-1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $884.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from -3.9x today. This future PE is lower than the current PE for the US Media industry at 13.4x.
• 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 8.53%, as per the Simply Wall St company report.

Sirius XM Holdings Future Earnings Per Share Growth

Risks

• Pressure on conversion rates due to newer trialers and younger consumers entering the automotive funnel could affect subscriber revenue, as competition from other services impacts customer acquisition.
  
• Decline in subscription revenue, primarily driven by slower subscriber growth and challenges in conversion rates, may negatively influence overall revenue and long-term growth potential.
  
• SiriusXM’s adjusted EBITDA guidance indicates a potential worsening decline in profitability for 2025 compared to 2024, which could impact net margins despite cost-saving measures.
  
• Rising competition and evolving advertising trends pose a risk to maintaining ad revenue, particularly in traditional broadcast markets, which could affect overall earnings.
  
• Economic factors such as potential tariffs impacting the automotive market could affect the volume of new car sales, thus influencing the subscriber funnel and potentially leading to revenue volatility.

Valuation

• The analysts have a consensus price target of $23.964 for Sirius XM Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.6 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 8.5%.
• Given the current share price of $19.34, the analyst price target of $23.96 is 19.3% higher.
• 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.