Why Sirius XM Holdings Rallied in April

Shares of satellite radio company Sirius XM (NASDAQ: SIRI) rallied 16.7% in April, according to data from S&P Global Market Intelligence.

Sirius reported solid earnings in April, but not until the very last day of the month. Rather, most of the month's move higher came from a new partnership announcement with Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube, followed by a big analyst upgrade.

Sirius XM gets an endorsement from Google and Wall Street

On April 22, Sirius XM announced a new partnership with YouTube. According to the press release, starting this fall, advertisers will be able to buy audio-focused YouTube inventory through SiriusXM Media, SiriusXM's adtech platform. The deal prompted a rise in the stock, given that YouTube's massive reach could drive strong advertising growth for SiriusXM's advertising solutions segment.

Sell-side analyst Barton Crockett at Rosenblatt became a believer on the heels of the deal, raising his price target on shares from $24 to $46, while lifting his rating on shares from "neutral" to "buy."

As justification for the big move, Crockett said in a note that the YouTube deal was a big endorsement of Sirius' advertising technology. Additionally, with the upcoming SpaceX IPO and Amazon's (NASDAQ: AMZN) recently announced acquisition of Globalstar (NASDAQ: GSAT), Crockett believes that investors will appreciate the value of Sirius' S-band satellite-to-device spectrum.

Therefore, while the company's subscription business appears to be stagnating or declining, the newer ad business could be a growth driver, and the spectrum assets may act as catalysts for a valuation "re-rating," in Crockett's view.

Sirius also reported first-quarter earnings on the last day of the month that beat expectations on both the top and bottom lines. Revenue grew 1%, an improvement from flat growth in the prior quarter, with decelerating subscriber losses, suggesting subscriber declines may eventually level out or even return to growth. Meanwhile, thanks to prudent cost cuts, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 6%, and earnings per share grew 22% to $0.72. Free cash flow more than tripled, due to higher profitability and lower satellite capital expenditures.

Image source: Getty Images.

Does Sirius XM have a longer run ahead?

While SiriusXM stock has appreciated 35% this year, it is still well below its highs and about 50% below its stock price level last seen as recently as the beginning of 2024.

Investors don't really know the financial impact of the YouTube deal, and it's unclear exactly what additional value Sirius can extract from its spectrum holdings. However, it is certainly a positive sign that Alphabet, a digital ad juggernaut, has endorsed the company's advertising capabilities, and at least one Wall Street analyst has become a believer in the company's turnaround.

Billy Duberstein and/or his clients have positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.