Satellite-radio operator Sirius XM may not be the growth stock it was more than a decade ago. Still, it’s built a business model designed to grow cash flow and operating margin over time. What makes Sirius XM unique is its subscription-based model. Sirius XM generates most of its sales from satellite radio subscriptions. This is important because contractions and recessions are an inevitable part of the economic cycle.
When the U.S. economy heads in reverse, ad revenue dries up quickly. By comparison, Sirius XM grew subscription revenue in 2020 by adding 909,000 net users for the year. Unfortunately, no stock can keep climbing forever. The Pandora acquisition that closed in early 2019 inflated results for a few reports, but now that we’re back on an even playing field, the gradual deceleration is becoming clear again.
Revenue rose a mere 3.2% in 2020. We weren’t driving a lot during the pandemic shelter-in-place phase, which naturally resulted in more people turning off their satellite radio subscriptions. We’re driving again in 2021, something that’s evident given the recent uptick in gas prices. The economy is growing, something that should help drum up a surge in ad revenue and improve the platform’s churn rate. Can Sirius XM break from this new run of a meandering stock price and top-line growth in the low single digits?
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