Sirius XM Stock Has a Lot to Prove on Thursday

7/24/17

By Rick Munarriz, MotleyFool

It's time to see if satellite radio is holding up better than the auto industry. Sirius XM Radio(NASDAQ:SIRI) reports quarterly results on Thursday, and recent momentum suggests it's going to be another strong period for the media giant. The stock closed out the week within 1% of a new 11-year high, something that's certainly in play if its second-quarter financials impress investors.

Analysts are holding out for modest growth in Thursday morning's report. They're targeting $1.32 billion in revenue, 6.7% ahead of the prior year, its weakest top-line gain in more than five years. Its top line hasn't grown slower than Thursday's forecast since the 6.5% revenue uptick it scored during the fourth quarter of 2011.

Wall Street pros are holding out for a profit of $0.04 a share, up from $0.03 a year earlier. This would be Sirius XM's fourth consecutive quarter of earning $0.04 a share, but it's worth noting that net income itself has climbed sequentially with every passing quarter. The math can be cruel when you have so many shares outstanding.

Jenny and Donnie Wahlberg at a Sirius XM Town Hall.

IMAGE SOURCE: SIRIUS XM RADIO.

Around the dial

This will be Sirius XM's first quarterly report since the satellite-radio monopoly bought a stakein Pandora (NYSE:P), and that transaction will come up during the earnings release and subsequent conference call. There's been a shake-up at Pandora since Sirius XM decided it would be easier to buy a piece instead of all of the streaming music pioneer. Is Sirius XM hoping to turn the users of Pandora's free service into its paid subscribers? Will Pandora's popular yet potentially peaking digital platform become a component of Sirius XM's offering? There's a lot of intrigue in the partnership.

There are other storylines in play as we head into Thursday morning. Revenue growth has been decelerating, declining every quarter since peaking at 11.1% during the first quarter of last year. If Sirius XM's top line grows by less than 7.7%, as analysts expect, it will be its fifth consecutive quarter of decelerating revenue growth.

A more welcome streak -- and one with an even more likely chance of being extended -- is that Sirius XM stretches its run of profitable quarters to 31 on Thursday. There are certainly other factors outside Sirius XM's control -- such as the health of the auto-sales industry that it relies on for new leads -- but ultimately Sirius XM will have to prove that its platform is sticky enough to survive sluggish auto sales and the connected car that increases car-audio options.

Sirius XM has routinely boosted its guidance, and if it's to hit its highest levels since 2006 at the end of the new week, it will probably have to do so again.

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