Sirius XM Holdings Inc. (NASDAQ: SIRI) faces a future without its biggest star; Howard Stern.
To elaborate, Stern’s Sirius contract will end this year and the King of All Media has no new Sirius deal. Instead, Sirius and Howard are still in talks about a new contract, Deadline claims.
I suspect Stern will not sign a Sirius XM contract until he sees if he can get more money elsewhere. Stern’s most probable destination is Spotify (NYSE: SPOT). I think Stern is talking to Spotify because the media claims the Swedish digital audio platform signed a $100 million contract with Joe Rogan.
I think Rogan, the Podcast King, is not a direct competitor to Stern. To explain, Rogan attracts a younger and more intellectual audience than Stern. Essentially, Stern is an old-fashioned Disc Jockey, a merry prankster of the airwaves.
In contrast, Rogan is a smart-alecky tech bro and MMA jock with intellectual pretensions. For instance, Stern clowns around while Rogan has serious conversations with guests between F-bombs.
Why Stern could go to Spotify
I think Stern could go to Spotify because Spotify could offer him a larger audience. Remember, Howard is an egomaniac who calls himself the King of All Media. Hence, Stern wants the biggest audience possible.
Sirius XM (NASDAQ: SIRI) claims its platform had 34.9 million subscribers in 4th Quarter 2020. In contrast, Spotify claims it had 248 million active monthly users on 30 September 2019.
Thus Spotify, can offer Stern something Sirius cannot a far bigger audience. Thus, Spotify could lure Stern to its platform with a deal similar to the Rogan arrangement.
Where will Stern go?
Sirius is not the only potential suitor for Stern. Another potential home for Stern is Apple (NASDAQ: AAPL). Statista estimates Apple Music had 68 million subscribers in December 2019 up from 60 million in June 2019.
Signing Stern could help Apple move beyond music to spoken audio programming (podcasts). For example, Apple could make Stern the cornerstone of an exclusive podcast library. Apple can easily meet Stern’s salary demands because it had $94.051 billion in cash and short-term investments on 31 March 2020.
Could Stern Go to Netflix?
Beyond Apple, another potential home for Stern is Netflix (NASDAQ: NFLX). Historically, Netflix has shown little interest in audio.
However, Spotify demonstrates you can make money with digital audio. Spotify reported an ending cash flow of $1.049 billion for the quarter ending on 31 March 2020. Therefore, Netflix could make money in audio.
If Netflix, or Disney’s (NYSE: DIS) Hulu, wants to enter the podcast business, signing Stern could be a good place to start. Offering Stern a big paycheck will send a message to other potential podcast superstars such as Dave Chappelle, Krystal Ball, and Tucker Carlson.
That message is “if you want freedom and a big payday come to our platform.” I think offering podcasts could be a smart move for Hulu, HBO Max, Amazon (NASDAQ: AMZN), or Peacock. To elaborate, Netflix does not offer podcasts now. Podcasts could offer premium content major competitors lack.
Hiring Stern could be a smart move for Amazon. Notably, Amazon could make Alexa the exclusive home of Howard Stern.
Can Sirius XM still Afford Howard Stern?
Under present circumstances, Stern could be too expensive for Sirius to retain. That could threaten Sirius XM’s existence because Stern is its star attraction.
Sirius XM had only $40 million in cash and short-term investments on 31 March 2020. In contrast, Netflix had $5.151 billion in cash and short-term investments and Amazon had $49.292 billion in cash and short-term investments on the same day. However, Spotify had only $1.857 billion in cash and short-term investments on 31 March 2020.
Sirius may not keep Stern because it has competitors who can more offer more money and bigger audiences. For example, a bidding war for Stern between Spotify, Amazon, Apple, Netflix, and possibly Disney could make Howard too expensive for Sirius XM. Under that scenario, Sirius XM could cannot afford any major audio stars.
Is Sirius XM Making Money?
Sirius XM (NASDAQ: SIRI) reported quarterly revenues of $1.952 billion on 31 March 2020 down from $2.062 billion on 31 December 2019.
Impressively, Sirius XM reported a $1.102 billion quarterly gross profit on 31 March 2020 down from $1.146 billion on 31 December 2019. However, Sirius’s quarterly common net income rose from $243 million on 31 December 2019 to $293 million on 31 March 2020.
Thus, Sirius makes money, and its revenues are still growing. Stockrow estimates Sirius XM’s revenues grew at a rate of 11.93% in the quarter ending on 31 March 2020. In contrast, Sirius XM’s grew at a rate of 37.74% in the last quarter of 2019.
Sirius also generates cash. Sirius XM reported a quarterly operating cash flow of $416 million on 31 March 2020. That quarterly operating cash flow was down from $532 million on 31 December 2019.
However, Sirius XM reported a small quarterly ending cash flow of $52 million on 31 March 2020. Interestingly, that ending cash flow grew from $30 million on 31 December 2019.
I suspect Sirius’s cash flow is low because it has to make huge payouts to keep stars such as Howard Stern on its platform. Thus, Sirius XM could be a warning to platforms such as Netflix and Spotify that rely on star power to sell subscriptions and advertising. Any cash those platforms generate could go straight to the star and his or her agent.
Is Sirius XM a Good Stock?
Thus Sirius XM can make money and it is capable of growth, but is it a value investment?
I think Sirius XM (NASDAQ: SIRI) could be a bad stock because Mr. Market paid $5.96 for it on 19 June 2020. In 2020, Sirius XM shares rose from $5.74 on 2 January 2020 to $5.96 on 19 June 2020 to $5.90 on 23 June 2020. In 2020, Sirius hit a high of $7.24 on 21 February but fell to a low of $4.44 on 20 March 2020.
Thus, Sirius is cheap, but I think its share price is too low for investors to make money. On the other hand, Sirius could be a good cheap dividend stock.
Is Sirius XM a Good Cheap Dividend Stock?
Sirius paid a quarterly dividend of 1.33₵ on 7 May 2020. Thus, the owner of 100 Sirius (NASDAQ: SIRI) shares could collect $1.33 in dividends on 7 May 2020.
Overall, Dividend.com estimates Sirius XM offered a forward dividend yield of 0.83%, a forward payout ratio of 23.55%, and a three-year average annual dividend growth rate of 9.1% on 19 June and 22 June 2020. Dividend.com claims Sirius XM’s dividend has grown for three years.
Thus, Sirius XM could be a good cheap dividend stock. However, I think Sirius XM faces a brutal battle for survival and an expensive competition for talent that could destroy its business.
What Value Does Sirius XM Have?
On the other hand, Sirius XM still has a platform with 34.9 million subscribers and the ability to attract top stars such as Howard Stern. Hence, Sirius XM has some value, but that value could vanish overnight.
Given those circumstances, I think Sirius XM’s best chance for survival could be an acquisition by a larger platform. For example, a sale of Sirius XM to Spotify. Spotify could buy Sirius XM for its 34.9 million subscribers and enormous stars with proven audiences.
In the final analysis, Sirius XM has a little value that will be hard to maintain. I advise investors to avoid Sirius XM (NASDAQ: SIRI) because it has little value.
Originally published at https://marketmadhouse.com on June 23, 2020.
