With the rise of streaming services, consumers increasingly seek tailored listening experiences that cater to their specific interests and preferences. Audio entertainment formats, such as podcasts, streaming music, radio, and audiobooks, are experiencing a significant surge in popularity.
Deloitte predicts the global audio entertainment market will exceed $75 billion in revenue in 2024, an increase of 7% year-over-year across all four formats. Factors including cost, content, and convenience will likely influence the market growth.
According to the Business Research Company report, the global entertainment and media market is expected to reach $3.55 trillion by 2028, growing at a CAGR of 7%. The growth in the forecast period can be attributed to the adoption of subscription models, a surge in smartphone penetration, AI and machine learning integration, and interactive and immersive content.
Against this backdrop, let’s compare two Entertainment - Radio stocks, Spotify Technology S.A. (SPOT) and Sirius XM Holdings Inc. (SIRI), to analyze which stock to buy, hold, or sell.
The Case for Spotify Technology S.A. Stock
Valued at $57.64 billion by market cap, Spotify Technology S.A. (SPOT) provides audio streaming subscription services globally. It operates through two segments: Premium and Ad-Supported. The company is based in Luxembourg City, Luxembourg.
SPOT’s stock has gained 82.9% over the past six months to close the last trading session at $289.59. Over the past nine months, the stock has surged 94.2%.
SPOT’s trailing-12-month asset turnover ratio of 1.67x is 248.4% higher than the industry average of 0.48x. Likewise, its trailing-12-month cash from operations of $897.81 million is 205.2% higher than the industry average of $294.18 million.
For the first quarter that ended March 31, 2024, SPOT’s revenue grew 19.5% year-over-year to €3.64 billion ($3.89 billion). Its operating income came in at €168 million ($179 million), compared to an operating loss of €156 million ($166.81 million) in the previous-year quarter.
Further, the company’s net income came in at €197 million ($210.65 million), compared to a loss of €225 million ($240.60 million) in the prior year’s quarter. Also, its earnings per share was €0.97 versus a loss per share of €1.16 in the previous-year quarter.
Street expects SPOT’s revenue for the second quarter (ending June 2024) to increase 16.2% year-over-year to $4.08 billion. For the fiscal year ending December 2025, the company’s revenue and EPS are estimated to grow 13.7% and 40.6% year-over-year to $19.08 billion and $6.68, respectively.
SPOT’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SPOT has an A grade for Growth and Sentiment and a B for Stability. It is ranked first among five stocks in the B-rated Entertainment - Radio industry.
Click here for the additional POWR Ratings for SPOT (Value, Stability, and Momentum).
The Case for Sirius XM Holdings Inc. Stock
With a $11.62 billion market cap, Sirius XM Holdings Inc. (SIRI) is an audio entertainment company in North America. It operates in two segments: Sirius XM; and Pandora and Off-platform.
SIRI’s stock has plunged 22.4% over the past month to close the last trading session at $3.02.
On April 25, 2024, SIRI declared a quarterly cash dividend of $0.0266 per share of common stock, payable on May 29. The company pays $0.11 annually as dividends, which translates to a yield of 3.52% on the current market price.
SIRI’s forward non-GAAP PEG of 1.09x is 15.5% lower than the 1.29x industry average. Also, the stock’s forward EV/EBIT of 10.69x is 28.6% higher than the industry average of 14.97x. However, in terms of forward EV/Sales, it is trading at 2.37x, 29.7% higher than the industry average of 1.83x.
SIRI’s trailing-12-month EBIT margin and EBITDA margin of 22.65% and 28.84% are 173.5% and 56.4% higher than the industry averages of 8.28% and 18.44%, respectively. However, the stock’s trailing-12-month gross profit margin of 48.98% is marginally lower than the industry average of 0.48x.
During the fourth quarter that ended December 31, 2023, SIRI’s total revenues increased marginally year-over-year to $2.29 billion. However, the company’s net income declined 3.6% from the prior year’s period to $352 million, while its net income per common share remained flat at $0.09. Its adjusted EBITDA decreased 3.6% year-over-year to $715 million.
Analysts expect SIRI’s revenue for the first quarter (ended March 2024) to decline marginally year-over-year to $2.13 billion. However, the company’s EPS for the same quarter is expected to grow 10.2% year-over-year to $0.07. Moreover, SIRI surpassed the consensus EPS estimates in three of the trailing four quarters.
SIRI’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Value, Stability, and Sentiment. SIRI is ranked #4 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SIRI’s ratings for Growth, Momentum, and Quality here.
Spotify (SPOT) vs. Sirius XM (SIRI): Buy, Hold, or Sell?
The media landscape has undergone significant changes due to rapid technological advancements and the proliferation of new communication devices. Technologies, including streaming services, social media platforms, and mobile devices, have reshaped the way content is created, distributed, and consumed, leading to solid growth in the entertainment industry.
Leading entertainment companies SPOT and SIRI stand to capitalize on bright industry prospects. Given its solid financials and promising near-term outlook, investors could consider buying SPOT for potential gains. However, waiting for a better entry point in SIRI seems wise now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Radio industry here.
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SPOT shares fell $1.21 (-0.42%) in premarket trading Monday. Year-to-date, SPOT has gained 55.66%, versus a 7.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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