Oone of Wall Street’s most surprising winning streaks – Sirius XM Fund (NASDAQ: SIRI) delivering 11 consecutive years of positive shareholder returns – ended in 2020 when the stock suffered a 9% impact (adjusted for dividend). It is now working on its second consecutive year of negative returns for shareholders.
Sirius XM seemed like an obvious game on recovery from the COVID-19 crisis. People would come out of the house again and get back into their cars where satellite radio is widely used. It should have been a roll call of reactivated subscriptions and new car sales. This was not the case.
Car sales have started to slow again after an initial explosion in the first half of this year. The company’s growth accelerated from its depressed 2020 results, but that apparently wasn’t enough to impress the market. Sirius XM has had its ups and downs throughout the year, but most often in the loser category. Now it’s on the verge of returning to positive territory, but it was still trading down 4% in 2021 until Tuesday’s close, even adjusted for its quarterly distributions.
Let’s take a look at what’s happened so far and consider what it would take for Sirius to start a new winning streak before the end of 2021.
Image source: Sirius XM Holdings.
Refuse for what?
Satellite radio is alive and well. Sirius XM Holdings had a record 31.4 million paying subscribers at the end of June. He expects to end the year with 1.1 million more self-paying accounts than he had at the start of 2021. Earlier this year, he was aiming for just 800,000 net additions.
The 15% year-over-year increase in revenue in the second quarter was its largest organic gain in over a decade. One caveat here, however, is that income has a rare effect. decline 5% in the second quarter of last year, but we are still looking at nearly 10% growth from what it was in the second quarter of 2019.
The stock was trading slightly higher from the start of the year to the end of the first half of 2021, but momentum reversed as COVID-19 cases started to rise again due to the Delta soaring and new car sales plummeted due to supply chain issues. JPMorgan analyst Sebastiano Petti demoted Sirius XM late last week, moving to a neutral position on the stock. The combination of a slowdown in auto sales and an increase in capital spending at Sirius XM’s end for the launch of new satellites has left him cautious about the company’s near-term outlook.
The business of Sirius XM has always been at the mercy of the automotive industry. In the beginning, when people could buy cars with factory-installed satellite radio receivers for the first time, it was a good thing. It’s a different game now, as more and more people are simply trading one car with one Sirius XM receiver for another. Between the decline in new vehicle sales and the decline in consumer demand for its service, growth may be more difficult for the company to achieve in the coming year. Petti lowered his forecast for net auto-pay additions in 2022 from 1.05 million to 750,000.
The best shot Sirius XM has to pull its stock price out of red for the year will come on October 28, when it releases its third quarter results. Expectations are low before the report – natural, given the headwinds in the auto industry. Sirius XM has historically raised its annual forecast in these quarterly audits, but this time around, holding on will be a victory.
Sirius XM has grown into a profitable media company and generates a ton of free cash flow, much of which it uses to buy back stocks and increase its dividend. However, he will have to get out of his two-year rut. We’ve passed the point where content deals could drive the title up. It recently announced smart partnerships with popular podcasts and celebrities, but investors are more concerned about the problematic trends that are working against its growth. The revenue report coming in two weeks will likely determine whether or not Sirius XM ends 2021 on a positive note.
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Rick Munarriz has no position in the stocks mentioned. The Motley Fool recommends Sirius XM Holdings Inc. The Motley Fool has a disclosure policy.
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