Investors appear concerned that Sirius XM's satellite radio business will see its subscription business take a hit over the coronavirus outbreak. Many economists estimate we now have a double-digit unemployment rate. First-time unemployment claims have skyrocketed to 6.6 million during the week ended March 28.
On the other hand, the company's subscriber base skews affluent. The bulk of them are unlikely to work in hospitality -- bars, restaurants, and hotels -- where most of the job losses seem to be occurring. And for the company's subscriber base, $13 or $14 per month is probably not onerously expensive considering it offers not just music, but also news, weather, sports, comedy, and other forms of entertainment. And driving will almost certainly return to normal levels once the lockdowns are over.
Certainly, new subscriber growth is reliant on new and, to a lesser extent, used car sales. To the extent car sales suffer during this downturn, new subscriber growth could take a hit. When combined with a potential increase in cancellations, it's possible the company's subscriber base could shrink.
But this company has shown a remarkable ability to mitigate churn, or subscriber cancellations, in the past. Monthly churn for self-pay subscribers -- those paying for the service themselves as opposed to a third party, like a car dealer -- was 1.7% last year. That was unchanged from 2008 and down from 1.8% in 2017 and 1.9% in 2016. Those sound like small changes, but they are very meaningful in a subscription business like Sirius XM's.
Interestingly, the company is offering its Premier service, which includes access to Howard Stern content, for free to all new listeners until May 15. That's probably an indication that management is worried about the business in the near term and hopes to offset any weakness by bringing in new subscribers who trial it until May 15 and hopefully stay on as paying subscribers beyond that. Time will tell.
Sirius XM's business will probably be fine. It may see a temporary uptick in churn and fewer new signups, but probably nothing that's overly material to the business in the long term. With the stock down so much, it wouldn't be surprising to see the stock rally if the company reports better-than-feared earnings on April 28. Investors should tune in.