Premium broadcasting giant SiriusXM (NASDAQ:SIRI) reported strong third quarter numbers before the bell on Wednesday morning. It was a clean double-beat-and-raise quarter with record revenues, record EBITDA, and record margins. Yet, SIRI stock failed to rally in response to those numbers.
SIRI stock initially bounced 3% higher. That rally was subsequently faded as broader market concerns dampened investor enthusiasm. As of this writing, SIRI stock is narrowly positive.
That isn’t a good sign. This was a great quarter from SiriusXM. Failure to rally after a great quarter means that this stock could be due for turbulence for the foreseeable future.
Indeed, over the next several weeks or until broader markets stabilize, I see SiriusXM stock struggling for gains, much as it has over the past few weeks. I thought the time to buy the dip was before the Q3 earnings catalyst on the premise that strong numbers could spark a bounce-back in SIRI stock. Those numbers were great, but the great numbers didn’t translate into a bounce-back in SiriusXM.
As such, the reality is that it isn’t time to buy the dip just yet. So long as macro-market headwinds remain, SiriusXM stock will be weak.
SiriusXM Had a Great Quarter
If you ignore everything else and just look at SiriusXM’s quarter, it is tough to see why the stock dropped following the release. From pretty much all perspectives, SiriusXM’s third quarter numbers were good.
It was a clean double-beat-and-raise quarter. Revenue growth was 8% adjusted for accounting changes. That is the same revenue growth rate the company has posted all year long.
Adjusted EBITDA rose 7% year-over-year, the best EBITDA growth rate year-to-date. Adjusted EBITDA margins rose to over 40% for the first time in company history.
The subscriber base grew by 5% year-over-year. Average revenue per subscriber rose 1%. The company now has 33.7 million subscribers with an ARPU of nearly $13.50. Five years ago, the company had under 26 million subs with an ARPU below $12.50.
In other words, the secular growth trends were reaffirmed in the quarter. Thanks to the company’s ability to acquire and create original programming content, SiriusXM has differentiated itself from the pack in the audio services world.
Thus, despite rising competition and a secular shift towards streaming, SiriusXM has managed to continued to grow revenue, subscribers, ARPU, margins and profits.
In the big picture, SiriusXM should continue to benefit from healthy growth trends. The company is extending beyond the car, and starting to integrate with the burgeoning IoT industry to increase audience reach.
Moreover, the acquisition of Pandora (NYSE:P) gives the company a streaming arm which will further extend reach beyond its traditional audience. And, most important, SiriusXM continues to make original content partnerships at a healthy pace, and so long as this remains true, the company should continue to grow.
Overall, then, looking out over the next several years, SiriusXM is supported by healthy growth trends. At current levels, the market is pricing in those growth trends, but not to the extent that it was before. As such, before buying the dip, investors need assurances that the market will take an optimistic outlook on SiriusXM’s long-term growth trajectory.
SiriusXM’s Trajectory and SIRI Stock
The problem with SiriusXM’s strong quarter is that they reported it at a time when a lot of other companies are throwing up duds and/or warning about rising costs and slowing growth. From Caterpillar (NYSE:CAT) to iRobot (NASDAQ:IRBT), this earnings season has been dominated by slowing growth, rising costs and tariff headwinds.
Naturally, this is dragging down the whole market. When you have a market that is in free-fall, you need a big catalyst to spark a single stock to break the broader trend. Third quarter numbers from SIRI were good. But, they weren’t outstanding enough to warrant a huge rally against the backdrop of a depressed market.
As such, buying the dip in SiriusXM here is a bit risky. This is a stock with a premium valuation. That premium valuation is warranted by healthy and long-term growth prospects. But, because of slowing growth concerns and rising rates, investors everywhere are more heavily discounting future growth prospects.
Same is true with SiriusXM stock. Thus, you have a stock with great single-stock fundamentals that is facing macro-market headwinds.
Until those macro-market headwinds clear, SiriusXM stock won’t stage a meaningful rally. That is what the Q3 report confirmed. You had a strong catalyst. Then, you had an uninspiring rally. That means the macro-market headwinds are pretty strong when it comes to SiriusXM. Until those headwinds clear, the stock will remain weak.
Bottom Line on SIRI Stock
The Q3 earnings report affirmed two things. One, the fundamentals underlying SIRI stock remain strong. Two, SiriusXM is facing some serious macro-market headwinds. That means that this stock is a buy, but only once those macro-market headwinds disappear. Until then, expect shares to trade weakly.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.