A lot of companies and investors will look back on 2020 as a highly unusual year, but it's shaping up to be a bit more bitter of a mile marker for Sirius XM Holdings (NASDAQ:SIRI). Shares of the satellite radio giant are trading 18% lower through Tuesday's close. There's no shortage of stocks trading lower this year, but for Sirius XM, this would be the first time in more than a decade that it delivers negative returns to its shareholders.
Sirius XM stock plummeted a crushing 96% in 2008, stung by the global financial crisis as well as its own potential collapse as it waited for regulators to approve the combination of Sirius and XM. It's been blue skies ever since, with the shares delivering dividend-adjusted gains for 11 consecutive years. With the stock in a significant hole nearly two-thirds of the way through 2020, it's starting to look as if the spectacular run of positive annual returns will end here.
Every stock is human
No winning streak lasts forever. Even the best stocks have off years, and if the run does in fact end here, it will be one for the ages. Sirius XM stock went from $0.11 at the end of 2008 to $7.11 at the end of 2019, making it nearly a 65-bagger in those 11 years.
One can argue that Sirius XM taking a breather here isn't a surprise. Organic growth is slowing, and there's a growing list of audio entertainment alternatives for drivers with the evolution of the connected car. But these trends have existed at Sirius XM for years, and they haven't gotten in the way of the annual gains.
The real catalysts behind this year's slide are the negative auto-ownership and usage trends as well as the escalating recession. The decline in auto sales was starting to percolate before the pandemic hit home. Vehicle sales matter because the purchase of a new or used car with a pre-installed satellite radio receiver is the lifeblood of new subscriptions for the platform.
The other two factors weighing on Sirius XM's growth prospects -- the sharp decline in the time that we're spending on the road and the economy smackdown -- are tethered to the COVID-19 crisis. With discretionary income being put to the test with so many people out of work, it's only natural for folks to cancel their satellite radio subscription. The pandemic has been the perfect storm here, with fewer subscribers making the daily commute, and then having to decide where to cut costs.
The bullish counter here is that net subscribers are still growing at Sirius XM. The company closed out the second quarter with a record 34.3 million total subscribers. It added 264,000 net new self-pay subscribers during the quarter itself, and the monthly churn rate actually declined to 1.6% for the period. Its listeners aren't leaving the way the bearish thesis would have this story play out.
Things may not get easier in the second half of this year. Sirius XM's full-year guidance back in July calls for just 500,000 self-pay net subscriber additions for all of 2020. More than half of them apparently arrived within just the second quarter. With 354,000 net new self-pay subscribers coming on through the first half of this year, we're looking at fewer than 150,000 through the next two quarters combined.
The good news is that Sirius XM is still a money machine. It is consistently profitable, and it's eyeing $1.6 billion in free cash flow this year. It also recently renewed its historically hungry buyback efforts. Sirius XM won't be able to repurchase its way out of this year's 18% decline, but at least it's trying to lead by example.