Sirius XM Holdings (NASDAQ: Siri) It was launched nearly a generation ago with big plans to change the media.
Fast forward to 2024, and it seems that these plans have failed to achieve their goals. Internet-based alternatives such as Spotify SiriusXM outperforms SiriusXM in audience size and market cap, and SiriusXM has struggled to break away from the auto market where it is most popular.
However, SiriusXM just made an unusual move, and some investors seem to think it could be a catalyst for the stock to rise.
Reverse Stock Split and Cross Split
On September 9, Liberty Media Liberty SiriusXM Holdings has completed its separation, and is now known as SiriusXM Holdings.
This deal reduced the number of outstanding shares by about 12%, after which the company issued one share for 10 shares. reverse stock split Which raised the stock price from cheap stocks group.
The deal appears to have given SiriusXM new life and could give it a fresh start. The company’s management will have more flexibility as Liberty Media’s role wanes.
Sirius affirmed its full-year outlook for revenue of $8.75 billion and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.7 billion. It also lowered its free cash flow guidance from $1.2 billion to $1 billion to cover costs related to the subsidiary.
Additionally, the company declared a quarterly dividend of $0.27, giving it a yield of 4.6%, and announced a $1.166 billion share repurchase program.
A reverse stock split is generally a warning sign for investors. Companies typically use this method when their stock prices have fallen to the point where they no longer comply with stock exchange listing rules. Combining the shares together increases their par value, which could bring such companies back into compliance and prevent them from being delisted.
But that wasn’t exactly the case with SiriusXM. It’s true that its stock has traded below $10 per share for several years, in part because the company issued more shares to stay afloat during the financial crisis of 2008 and 2009. However, the company appears more stable now than stocks that are reverse-split.
Sirius after the split
Sirius has been consistently profitable, but the company has struggled to grow revenue and audience in recent years. The veteran satellite radio company continues to target a gearing ratio of three times adjusted EBITDA, and plans to spend its free cash flow on investments, maintain its dividend and pay down debt.
The company ended the second quarter with $9 billion in long-term debt, meaning it was within its targeted leverage ratio based on its $2.7 billion EBITDA forecast.
SiriusXM also said it is assessing goodwill and intangible assets it inherited from Liberty Media, which could lead to a writedown in the third quarter. However, that would be a non-cash accounting charge.
Is it a good idea to buy SiriusXM?
For dividend and value investors, SiriusXM looks like a good candidate. The stock is trading at a price-to-earnings ratio of 7, and the 4.6% yield at the current share price is also attractive.
However, it is reasonable to question how sustainable the company’s business is, which likely explains its low valuation.
Sirius is likely to lose CEO Howard Stern next year when his contract expires and he’s expected to retire. The company also continues to lose market share to rival platforms like Spotify, and satellite radio appears to be becoming less relevant as more vehicles come equipped with internet-ready interfaces like CarPlay.
In the third quarter, Sirius revenue fell 3% to $2.18 billion, and total subscribers fell by about 100,000 from the second quarter to 33.3 million. Its subscriber base fell by about 806,000 from a year earlier.
For the right investor, Sirius could be a good option, especially if the company takes advantage of its falling stock price and buys back shares. However, investors should monitor revenue and subscriber trends to ensure the business is stable. While these risks are diminished by the company’s low valuation, they still pose the biggest threat to SiriusXM stock.
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Jeremy Bowman The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Spotify Technology. The Motley Fool has Disclosure Policy.
After its reverse stock split, is SiriusXM Satellite Radio stock a buy? Originally posted by The Motley Fool