Sirius XM’s (NASDAQ:SIRI) latest acquisition of Simplecast, a podcast management platform, ought to help the audio entertainment company keep growing. The question is whether it’s enough to get SIRI stock to $10.
I’ll look at Sirius XM’s current situation and what the future might mean for it with Simplecast a part of its business going forward.
According to Yahoo Finance, Sirius XM’s stock price hasn’t been in double digits since January 2002, almost two decades ago.
It’s remained under $10 ever since then, but it’s not nearly as bad as it sounds.
The Last Time SIRI Stock Hit $10
At the end of 2001, it had 76.6 million shares outstanding for a market capitalization of $849.5 million. Today, it has 4.4 billion shares outstanding and a market cap of $25.1 billion. Over 19.25 years, that’s a compound annual growth rate of 19.2%. I’ll take that every day of the week and twice on Sundays.
So, to get to $10, SIRI stock would have to increase in price by 78%, a feat that’s not impossible given its history. That said, Sirius XM’s annualized total return over the past five years through June 26 is 8.2%, less than half its performance over almost two decades.
Two things have changed Sirius XM’s possible trajectory in recent years: First, it acquired Pandora in February 2019 for $3.5 billion in stock. Secondly, and much more recently, it acquired Simplecast on June 17.
Acquisitions and Sirius XM Stock
Let’s first examine the Pandora acquisition.
Pandora shareholders received 1.44 new shares of SIRI for every share of Pandora. Sirius paid the equivalent of $10.14 per share for Pandora’s stock. Those shares are worth $8.24 as I write this, about 19% less than when the deal was completed in early 2019.
Pandora’s latest results from Sirius XM’s quarterly report ended March 31, 2020, suggest there is still some work to be done to deliver an acceptable return on investment for its multi-billion acquisition.
Pandora generates revenue from paid subscriptions as well as from audio, display, and video advertising.
In Q1 2020, it had 6.3 million subscribers that generated $128 million in subscriber revenue and $241 million in ad revenue for a total of $369 million, 1.1% higher than a year earlier. If you exclude the one-year promotional trial with T-Mobile (NASDAQ:TMUS), the revenue increase was slightly better than 1.1%.
Pandora’s revenue in the first quarter accounted for 18.9% of Sirius XM’s total for the quarter. To add value for shareholders, Pandora needs to make some inroads against competitors like Spotify (NYSE:SPOT) and Apple (NASDAQ:AAPL).
Until this happens, the price paid for Pandora remains expensive.
The Simplecast acquisition, on the other hand, could turn out to be a real diamond in the rough.
While terms haven’t been released, the combination of Simplecast with Sirius XM’s AdsWizz monetization platform, ought to give podcasters of all sizes an end-to-end solution to make money from their podcasts.
“Our goal is to provide audio publishers with state-of-the-art platforms and give them everything they need to be successful,” AdsWizz CEO Alexis van de Wyer said in the press release announcing Simplecast’s acquisition. “Empowering podcasters of any size to create, distribute, analyze, and monetize their work is the next natural step in pursuing our vision.”
Given Spotify’s push into podcasting, delivering a specific monetization strategy and platform for podcasters should help build Sirius XM’s podcasting ambitions.
Sometimes it’s the smaller deals that deliver the highest value.
The Bottom Line
While Pandora and Simplecast could be catalysts for SIRI stock to grow to $10, there’s no question that it has to reach an agreement with Howard Stern to renew his contract, which ends in 2020.
Further, it would be even better if Stern were to do a podcast for Sirius XM, because that would put the stamp of approval on its podcasting business, making it much easier to attract potential podcasters, both large and small.
However, if Stern walks, all bets are off.
I sense that Howard Stern’s got lots of years of broadcasting left in him, although he may give it all up to continue rescuing cats with his wife, Beth. He’s certainly earned the right to do whatever he likes.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
