Sirius XM faces determined competition from audio streamers, which is a rising challenge.
Sirius XM (SIRI -3.25%) has been an equity holding of Warren Buffett’s investment vehicle Berkshire Hathaway for years. Not everything the star investor touches turns to gold, however, and the satellite radio broadcaster is poised to keep being an underperformer.
At least, that’s the call of one prognosticator tracking Sirius XM’s fortunes. He thinks the company’s shares are a sell, as they’re standing in front of a double-digit price decline.
A 33% price target cut
On April 1, Wells Fargo analyst Steven Cahall drastically cut his price target on Sirius XM stock. He chopped it by 33%, reducing it to $3 per share. That’s 22% below Sirius XM’s most recent closing price, so at the risk of stating the obvious, Cahall rates the stock an underweight (i.e., sell).
That lines up with general sentiment on the company, which isn’t managing to move the dial on any of its revenue sources. The bulk of its top line is comprised of subscription fees, which were more or less stagnant in 2023 (at just under $6.9 billion) compared to 2022. Advertising revenue also flat-lined. Sirius XM is profitable but like its overall take, net income was stagnant last year, too.
In explaining his price target cut, Cahall wrote that this year will be a challenging one for the growth Sirius XM clearly needs. Music, podcast, and audiobook streaming services are aggressive and winning popularity, which is a challenge for the company. Cahall also sharply increased his estimate for net subscriber losses, which if realized could really dent the finances.
A wide moat isn’t necessarily an advantage
Sirius XM has always enjoyed a position as America’s one and only satellite radio broadcaster. But in this age of accessible and relatively low-cost streaming, that isn’t an impressive throne to occupy. The company has been on the scene for years but doesn’t seem to have any strategy to compete more effectively and get the growth motor running. I fully buy into Cahall’s sell argument on the stock.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
