Did Howard Stern Just Save Sirius XM, Again?
Key Points
Sirius XM and Howard Stern have agreed to a new three-year deal to keep the radio host on the platform.
Sirius XM's subscriber base and revenue have slightly declined in recent years, but stability is still a good thing.
The stock's cheap valuation makes it a smart play on Sirius XM's expanding flexibility.
- 10 stocks we like better than Sirius XM ›
Howard Stern fans will be able to put off the inevitable for at least another three years. The legendary radio morning show host announced last week that he was renewing his contract with Sirius XM Holdings (NASDAQ: SIRI) for another three years.
It came down to the wire, as the previous contract negotiations between Stern and the satellite radio monopoly had played out over the past 20 years. However, for once, the renewal did come as a surprise. A year ago, Sirius XM was targeting $200 million in annual cost savings for the media stock. Ending the deal with Stern would've gotten the media stock's bellwether roughly halfway there. There were also published rumblings this summer about Sirius XM getting ready to move on from the icon that put the platform on the map two decades ago.
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The end of the reign for the self-appointed "king of all media" was finally fathomable. Thankfully for Stern, his fans, and Sirius XM shareholders, it didn't turn out that way.
Image source: Getty Images.
Sometimes you can have it all
Investing in Sirius XM is no longer wildly speculative. The satellite radio operator predates the era of WallStreetBets and meme stocks, but it had a similar vibe when it was a profitless but ascending business almost two decades ago. It has matured over time, now catering more to value investors than to devotees of growth stocks. This isn't necessarily a bad thing.
Revenue is declining slightly for the third consecutive year. Its subscriber base has been gradually fading since peaking six years ago as it approached 35 million accounts. The flip side to those knocks is that Sirius XM stock is cheap in an otherwise buoyant market.
You can buy the stock for just 6.7 times forward earnings. Income investors are rewarded for their patience with a hefty 5.2% dividend yield. It continues to deliver more than $1 billion in annual free cash flow. Since Stern last renewed his contract in late 2020, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has become Sirius XM's largest shareholder. It has to feel good to know that generational investor Warren Buffett sees the value in your stock. Berkshire Hathaway investors currently own 37.1% of Sirius XM's outstanding shares.
The even cooler part of the Stern renewal isn't just that it happened. The steps that Sirius XM took to brace itself for his potential departure have made it even better now that it can offer the best of both worlds to subscribers of the premium audio service.
A radio dial of opportunities
Life hasn't been easy for Sirius XM shareholders lately. The stock is trading 9% lower in a year in which the market averages are rising. Sirius XM stock has lost two-thirds of its value over the past five years.
Sirius XM kicked off this year looking to cut costs, while also being willing to place new bets to expand its reach. The platform's churn rate has held steady over time. Stern fans are loyal, and the same can be said of active drivers who value the breadth of premium content and commercial-free music. The problem has been the aging of Sirius XM's base, and the struggles to appeal to younger listeners.
It has been striking deals with podcasts since last year, including Call Her Daddy, Rotten, and Smartless. These shows are resonating with the younger audiences ignoring Sirius XM. This was widely seen as a way for Sirius XM to prepare for life after Stern. Now it can cash in on all of its offerings heading into 2026.
Terms of the Stern deal haven't been published, but with the radio legend is pointing out that the new deal provides him with more flexibility to enjoy his golden years. This implies that his on-air requirements will be less than before. The value of the contract is also likely more economical for Sirius XM.
It's also worth noting that after signing four five-year deals since making the jump to satellite radio, this is just a three-year contract. It gives Sirius XM more flexibility come early 2029 if Stern does indeed hang up his headphones. It also gives the satellite radio provider another three years to prepare for the programming void. It doesn't matter if you're a Stern fan or not. This deal should keep current subscribers close while affording Sirius XM the financial elasticity to continue to pursue more content.
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Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
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