Is There Life After Howard Stern for Sirius XM Investors in 2025?

Sirius XM Holdings (NASDAQ: SIRI) investors had a hectic 2024 that saw the shares surrender more than half of their value. This year isn't going to be any less of a nail-biter. Howard Stern put Sirius Satellite Radio on the map when he took his popular terrestrial radio morning show to the upstart platform 19 years ago. After signing four five-year deals, there's a fair chance he retires at the end of 2025 or the satellite radio platform decides to go in a different direction.

Sirius XM has been arming itself for the inevitable departure of Stern, who will be nearly 72 by the time his current deal ends in December. There may not be any clarity on the situation until much later this year, unless Stern makes his intentions known on the air sooner rather than later. The last five-year deal wasn't finalized until December of 2020, weeks before the end of the term.

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How badly does Sirius XM need its most iconic on-air personality? Can the platform get out of its recent growth funk even if it manages to keep him around a little longer? Let's take a closer look at the situation, and what this means for Sirius XM's slammed shareholders.

Fresh content

Sirius XM has been going through some growing pains in recent years. Its subscriber base peaked five years ago, but it's just 5% lower today. The media stock is calling for a 2% decline in revenue this year, its third consecutive year with a top-line dip.

Retention isn't the obvious problem. Sirius XM's monthly churn rate for its self-pay subscribers is 1.6%, within its historical range. The challenge for Sirius XM is attracting new users. Its free trial funnel continues to soften. It's comforting to know that Stern and the rest of the satellite radio's content remain sticky to a mostly loyal audience, but where is the next generation of listeners?

The biggest obstacle appears to be attracting new users. Stern has been behind the Sirius XM paywall for nearly two decades, so a lot of younger car drivers haven't been exposed to Stern's antics or his sharp interviewing skills. The satellite radio monopoly needs to score content that's more relatable to younger listeners, and it's been doing that lately.

This summer it scored a deal for Alex Cooper's Call Me Daddy, a podcast that's popular with a female audience. Earlier this year it landed a multiyear deal for the SmartLess podcast hosted by Jason Batemen, Will Arnett, and Sean Hayes. These aren't entirely exclusive deals like Sirius XM has with Stern. SmartLess continues to be available on Amazon's Wondery app and other platforms, just as Call Me Daddy is still a mainstay on Spotify.

This isn't a bad thing. Sirius XM is still gaining some exclusively along the lines of ad sales on its platform, exclusive content, or early access to fresh episodes. More importantly, prominent visibility of the two podcasts on popular streaming outlets should attract new subscribers. The Instagram page for Call Me Daddy has 2.5 million followers, a million more than the social media hub for Stern's show.

Sirius XM may very well strike another deal with Stern later this year. Even if it doesn't, it will retain access to the Stern catalog through the end of 2027. However, if Stern does indeed move on, Sirius XM now has a way to reach out to the younger audiences that it desperately needs right now for a return to growth.

Image source: Getty Images.

Facing the music

Despite the uncertainty of Stern and the slow fade of satellite radio itself, Sirius XM is in surprisingly decent shape. It remains highly profitable, and the stock is trading for less than 7.5 times forward earnings estimates.

It expects to generate $1.15 billion in annual free cash flow this year, short of the record $1.55 billion it delivered in 2022. However, it expects free cash flow to ramp back up to $1.5 billion by 2027. Getting there will be easier said than done, but Sirius XM will continue to use its inflows to pay down its debt and support its already impressive quarterly dividend.

Sirius XM is making sure that it remains relevant no matter how this year's situation with Stern plays out. If anything, its openness to strike deals with some of the country's most popular podcasts makes it better positioned to weather the storm this year than it has at the previous renewal points with Stern in the past.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Amazon and Spotify Technology. The Motley Fool has a disclosure policy.