What Will Sirius XM Stock Be Like In 5 Years?

The stock has fallen about 60% over the past five years. Sirius XM (NASDAQ: Siri) It hit long-term investors hard. It’s no surprise that management did a 1-for-10 reverse split to prevent the stock from getting too cheap. But the split caused Sirius to penny stock areaThat doesn’t solve the problem that put it there in the first place. Let’s dig deeper into what the next five years will bring.

Legal monopoly without a moat

Sirus XM, the 2008 merger of Sirius Satellite Radio and XM Satellite Radio, illustrates the fascinating nuances of American antitrust law. On the surface, the merged company is a monopoly. Still, the Federal Communications Commission (FCC) approved the merger, recognizing that the deal would not harm consumers, given the growing choice in audio entertainment.

In retrospect, the FCC’s decision was correct. Sirius XM is the only satellite radio provider available in the United States. However, it has terrestrial radio stations and relatively new competitors, such as apologize Car Play lets users connect their smartphone, complete with a library of music and podcasts, to their car.

In the past, Sirius has strengthened: economic trench Exclusive content, such as the howard stern show. But while it’s too early to say the influential “shock jock” has become obsolete, his relevance has faded compared to a new breed of podcasters, like Joe Rogan and Tucker Carlson, who are ranked first and second among podcasters. Spotify‘S Listener rankings. In that sense, the Spotify app can compete directly with Sirius, as it is also compatible with Apple Car Play.

Lackluster business momentum

Sirius XM is a relatively mature company in a low-growth industry, and its second-quarter results show that: Total revenue was down 3.2%. annually Operating income rose 5.4% to $505 million, up from $2.18 billion a year ago, but lower costs, including office salaries and development costs, led to a 5.4% increase in operating income to $505 million. Perhaps the biggest draw for Sirius investors is its healthy bottom line.

The company reports free cash flow of $343 million, adjusted for Income before interest, taxes, depreciation and amortization (EBITDA) $702 million. Management returns this money to investors through a 4.34% dividend. Buying stocks — $1.17 billion was approved in Q2. Between 2012 and 2022, Sirus repurchased a whopping 3,654 shares for $16.5 billion, and it shows no signs of stopping any time soon.

Image credit: Getty Images.

Many investors prefer share repurchases because they reduce the number of shares outstanding for the company, benefiting each shareholder. Bigger than Claims on present and future income. However, spending has an opportunity cost. And The cash used to buy back Sirius’s stagnant stock could have been used for: Invest in the company’s long-term growth potential.

Where will Sirius XM be in the next five years?

Sirius isn’t a terrible stock, but the next five years won’t be as exciting as the last five. The satellite radio business is a steady cash cow, but there aren’t many growth opportunities, especially as competition from alternatives like Apple Car Play intensifies.

To make things worseSirius’s management appears to have run out of ideas. Instead of investing in research or new business areas, they are content to buy back underperforming stocks, even though that money could potentially yield greater returns. SNP500. The benchmark index is up 87% over the past five years, while Sirius stock is down 60%. Investors can find much better homes for their capital.