This is an excerpt from Eagle Point Capital’s Spring 2026 letter to clients. Every six months, EPC writes to clients to explain what they own and why they own it. The portfolio-specific portion of each letter is for clients and premium subscribers only. Premium subscribers will receive the entire letter 45 days after our clients (Saturday, May 16, 2026).
Sirius XM operates a satellite radio network and the Pandora music streaming service. It is a predictable and profitable business with recurring revenue, low churn, and significant free cash flow.
In late 2024 Sirius separated from Liberty Media, becoming an independent public company. 2025 was a year of stabilization. Key metrics were largely flat, but management progressed several initiatives which will serve Sirius over the long term.
Our thesis is that Sirius is a stable business whose capital expenditure cycle is peaking. We expect flat revenue but increasing free cash flow as satellite spending slows. As debt gets repaid, we expect management to use free cash flow for repurchases, adding to the stock’s 4.7% yield.
Sirius’s 2025 performance met these expectations. Revenue fell 2% while free cash flow increased 24% to $1.26 billion. Self-pay subscribers ended the year at 32.9 million, a decrease of 301,000. The quarterly results show an encouraging trend. A loss of 303,000 subscribers in Q1 narrowed to a loss of 68,800 in Q2 and a loss of 40,000 in Q3. In Q4 Sirius added a net 110,000 subscribers.
The loss of 303,000 in Q1 was the result of a December 2024 decision to focus on the in-vehicle experience and deprioritize high-cost and high-churn streaming-only customers. Sirius has an advantage in-car, where it has its proprietary hardware and fewer services competing for its customers’ attention. Q1’s high churn was a deliberate cleansing of the subscriber base.
In July the company launched SiriusXM Play, a low-cost, ad-supported option that costs less than $7 per month. It is designed to widen the top of the funnel by targeting price-sensitive drivers.
In December Sirius introduced companion subscriptions. These allow customers to add a second vehicle or family member to their plan at a reduced rate. Companion subscriptions are like the family plans Netflix and Spotify offer. They have proven to reduce churn because they lock-in an entire household, not just one driver.
Companion subscriptions drove the surge in Q4 subscribers. Of the 110,000 net new subscribers, 80,000 were companions. Management expects this to be a one-time effect and cautioned that the 2025 results will make for difficult comparisons in 2026. Stripping out the one-time 80,000 companion additions leaves 30,000 net adds, which is still a strengthening trend.
Churn remained a best-in-class 1.5%, an improvement from 1.6% in 2024. This indicates that while it is difficult to acquire new subscribers, existing subscribers are sticky.
Average Revenue Per User (ARPU) was $15.11, a decrease of $0.10 or 0.7% for the year. Sirius raises prices every two years and did so on schedule in March 2025. SiriusXM Play and companion subscriptions pressured ARPU and offset the price hike. This was intentional. In exchange for a few cents of ARPU, management built a larger funnel of subscribers on lower priced tiers they can upsell. The ad-supported tier is dilutive to ARPU but accretive to gross profit as it brings in more ad dollars not measured by ARPU.
Advertising revenue was up 1%. Despite the topline stability, ad revenue shifted from music to podcasts. Podcasting revenue grew 41% in 2025, lapping 12% growth in 2024. The SiriusXM Podcast Network reached the #1 spot in the nation for weekly listener reach (according to Edison Research) and now represents more of the Top 20 podcasts than any other network. In February 2026 Sirius re-signed Howard Stern to a new three-year contract.
Pandora’s monthly active users fell 5%, and ad revenue fell 13%. Listening hours decreased 3% to 9.5 billion as users shift towards on-demand music streaming services like Spotify and Apple Music.
Management expects total ad revenue to remain stable as podcasting growth continues to offset the managed decline of Pandora’s music streaming.
Sirius returned $501 million to shareholders in 2025. $365 million via dividends and $136 million via opportunistic repurchases. The stock currently yields 4.7% and repurchases added 1.2%. Total debt fell by $669 million, reducing leverage from 3.9x to 3.6x. Management’s target is the low-to-mid 3s, which it should achieve in Q4 2026.
In February 2026 Sirius refinanced $1.25 billion of 3.125% senior notes due in 2026 with $1.25 billion of 5.875% notes due in 2032. Interest costs will increase $34 million per year but are locked for six more years.
Sirius trades at a rock-bottom 5.6x free cash flow, an 18% yield. Management expects free cash flow to increase 7% to $1.35 billion in 2026 and 11% in 2027 to $1.5 billion. Deleveraging should finish in Q4 2026, making an additional $600+ million available for repurchases. We expect Sirius to return nearly $1.2 billion to shareholders in 2027, a 15.6% yield.
Forward returns are compelling. A combination of an 18% free cash yield plus 10%+ annual free cash flow growth puts business returns squarely above 20% per year. If free cash flow continues to grow and gets returned to shareholders, we think a valuation re-rating is likely. That would push the stock’s returns even higher.
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It was very interesting, especially the part about debt financing. I actually wrote an article about SIRI around three months ago.
https://cundilldeepvalue.substack.com/p/deep-value-report-q4-2025-update?r=1fqo4l