Consumer-facing stocks have been getting crushed in the past couple of weeks, and Sirius XM Holdings (SIRI 1.48%) isn't immune to the malaise. With shares of the satellite radio provider opening at $6.12 on Wednesday morning, we're talking about a 17% hit since its 52-week highs just three weeks ago.
A 17% haircut during one of most brutal market sell-offs in years may not seem so bad, but it's as good a time as any to assess if Sirius XM is a buying opportunity or not. Investors have been assessing their portfolios to see how individual stocks will fare during the coronavirus outbreak. Let's see how Sirius XM can handle the flurry of headwinds as it cashes in on some potential tailwinds in this financial storm.
Let's start with the bad news
The biggest potential roadblock for Sirius XM heading into 2020 was declining auto sales. Millennials aren't as passionate about owning vehicles as their parents and grandparents, and that's resulting in a slump in new-car sales. New drivers are the lifeblood of satellite radio, and Sirius XM's guidance predicts that this will be the first year in more than a decade in which it doesn't add at least a million self-pay net additions.
Add coronavirus into the mix, and the prospects get scarier. Folks aren't going to be making big-ticket purchases if the economy keeps reeling. Go down a rung or two on this ladder and we could get to the point where more folks are told to work from home, and that would be another blow to Sirius XM. Paying for premium satellite radio makes sense for commuters, but the value proposition of the platform diminishes when someone isn't driving to and from work every day.
When it's time to cut costs, Sirius XM subscriptions could be a casualty. The lion's share of its 34.9 million total subscribers consume the platform largely when they're on the road. As bad as it is when car sales are shifting into reverse, the prospects for Sirius XM get even worse if cars are just collecting dust.
On the bright side
The good news for Sirius XM is that it's been making big moves to remain relevant outside your dashboard space. It closed on the $3.5 billion deal for Pandora early last year, making it a major player in streaming. Last month it became a minority stakeholder in Soundcloud, the world's leading open audio platform.
Sirius XM has already been integrating Pandora into its namesake platform, and the more steps it can take toward positioning itself as a premium provider across all forms of audio consumption the better. Home-bound subscribers will have more time to explore Sirius XM's plethora of offerings, and that's not a bad thing.
The final bullish case for Sirius XM thriving in the current calamity is that it's very profitable. It has a low churn rate, largely because it offers discounts for long-term subscriptions. In short, it has locked in a lot of its subscribers -- and by the time they have to renew, we may already be over the coronavirus hump.
Investors will naturally be rattled if Sirius XM begins losing more subscribers than it's taking in. The 900,000 net additions it seemed to be conservatively targeting for all of 2020 in early February now may be too optimistic. However, Sirius XM is a financially steady media empire more than a decade removed from being a speculative penny stock. Sirius XM is a blue chip stock in an otherwise problematic broadcasting industry, and it should survive through the COVID-19 challenge even if it doesn't exactly thrive during its darkest stretches.