SiriusXM Stock Rises on Report of Howard Stern Nearing Renewal

Howard Stern
Debra L Rothenberg/FilmMagic

Howard Stern

Bloomberg says "The King of All Media" could get a deal worth around $120 million per year, compared with $80 million-$100 million currently.

The stock of satellite radio company SiriusXM rose in early Wednesday trading as Wall Street digested a report that the company was close to sealing a big new deal with Howard Stern.

As of 9:32 a.m. ET, the stock was up 5 percent at $5.84.

Bloomberg News late on Tuesday reported that the deal for "The King of All Media" could be worth around $120 million per year, compared with Stern's current five-year contract of $80 million-$100 million a year. That drove the firm's stock higher in after-hours.

But Stern, whose SiriusXM contract expires at the end of the year, on Wednesday morning said the two parties weren't "anywhere near a deal," which may explain the smaller uptick in Wednesday trading.

SiriusXM's Jim Meyer, who is leaving the post of CEO at the end of this year to focus on the vice chairman role, has in recent months repeatedly said that a Stern deal renewal was a key focus for him, and he was hoping for news on that around the company's third-quarter earnings call on Oct. 20.

At one investor event in September, Meyer said that he has been "really clear" that "I want Howard Stern to be on SiriusXM for as long as Howard wants to work," lauding their "tremendous relationship" that has "never been better."

In July, Meyer said talks had picked up steam. "I know what Howard wants. And we're trying to figure out a way to make all those things work together," Meyer explained. "I don't want to be overly optimistic here, but I want Howard here. We'll keep working and we'll get there, I hope. At the end of the day, it will come down to what Howard wants to do."

He also told recent investor conferences that the deal with Stern, 66, was a financial success. "I can look every investor in the eye and tell them that is a good investment for SiriusXM," he said at one. At another one, he said: "We have had Howard for 15 years and I am sure that every penny we paid Howard our shareholders have benefited [from.]"

Wall Street has seen music streaming giant Spotify as the main alternative for Stern given its growing podcasting business. Citing sources, Bloomberg said that "preliminary" discussions between Stern and Spotify didn’t progress very far.

SiriusXM didn't immediately comment on the report.

"Despite significantly outperforming initial COVID-related adjustments to expectations, SiriusXM's equity value has declined 22 percent year-to-date (versus a 4 percent rise for the S&P 500)," B. Riley analyst Zack Silver highlighted in a note to investors. "In addition to the recent management transition, we suspect that concerns around a successful renewal with Stern — exacerbated by Spotify's march into non-music exclusives — has driven some of the pressure."

He highlighted that SiriusXM "already has rights to Stern's back catalog through 2027, which helps lower the risk of Stern joining a rival service."

He went on to ask if Stern was "really still worth $100 million-plus a year?" And Silver answered: "Our recent survey work suggests that only a low-single-digit percentage of respondents subscribe to SiriusXM solely because of Howard Stern. That said, we do believe marquee exclusives like Stern help support SiriusXM's premium price point, as well as differentiate the service from other subscription audio platforms. And for investors, we believe that a potential renewal with Stern serves as a proof point that SiriusXM can continue to retain and attract top talent to its service."

His financial model so far assumes a year-one increase in case of a Stern renewal worth only $10 million. "That said, the potential step-up would only drive a 1 percent hit to our current 2021 earnings before interest, taxes, depreciation and amortization estimate — a small price to pay for removing the Stern renewal overhang," the analyst argued.

Silver's conclusion on the report of a nearing new contract: "With the Stern renewal potentially derisked, we recommend that investors take advantage of the recent weakness."

Before the report of a potential Stern renewal, Credit Suisse analyst Brian Russo had on Tuesday upgraded his stock rating on SiriusXM from "neutral" to "outperform" and raised his stock price target from $6.25 to $7.50, citing the company's better-than-feared performance amid the coronavirus pandemic.

Addressing the impact of Stern, he noted that the star had in a TV interview said that 60 percent of SiriusXM subscribers listen to him. "We assume 15 percent of Stern listeners would cancel, implying a potential subscriber loss of 2.7 million," Russo estimated. "For perspective, this loss is similar to the 3.0 million subs we expected SiriusXM to lose in our COVID downside scenario in March when shares bottomed at $4.50. Our rating relies upon a base case where Mr. Stern has a multi-year renewal that helps put fears of content competition to rest for now."