Is Sirius XM Stock Slowly Fading Away?

The bar of expectations was low heading into Sirius XM Holdings ' (NASDAQ: SIRI) second-quarter results on Thursday morning. The satellite-radio provider still bumped its head against the limbo stick. Revenue clocked in at $2.18 billion for the three months ending in June, a 3% decline from where it landed a year earlier. Analysts were holding out for just a 2% dip.

The year-over-year decrease in business may not seem like much, but it's the second-worst slide in the company's 30 years as a publicly traded company. The only worse performance was a 5% top-line retreat in the second quarter of 2020 when the pandemic had folks hunkering down at home. Cars were parked, and there wasn't a lot of interest in buying new rides with satellite radio receivers. It was an easy economic decision to nix the premium subscriptions to the service.

Stopping the volume knob from moving counterclockwise

After eight straight years of organic revenue gains in the single digits, Sirius XM posted a 0.6% decline in 2023. This year will likely be worse. The $8.75 billion in revenue that Sirius XM continues to target for all of 2024 is 2.3% lower than where it was last year.

It's not the only major metric going the wrong way. Sirius XM ended the quarter with 173,000 fewer satellite-radio subscribers than it had three months earlier, shedding 618,000 through the first half of the year. Sirius XM still has more than 33 million total accounts on its platform, but the trend is problematic.

Subscriber turnover is surprisingly steady. The company's monthly churn rate of 1.5% is where it was a year ago and actually lower than its long-term historical range. The problem is getting folks interested in kicking the tires of the service that's largely consumed in cars, and the funnel of free trials is thinning. Is satellite radio losing its appeal, particularly with younger drivers?

A popular bearish knock on Sirius XM's business is that streaming services are eating away at its potential subscriber base in this era of the connected car. There's certainly some truth to that.

Global digital-music leader Spotify just posted an 18% increase in monthly active users in North America. Unfortunately for Sirius XM, its own streaming platform -- Pandora, which it acquired more than five years ago -- is also shedding subscribers.

Image source: Sirius XM Holdings.

Fighting back against the bearish narrative

The news this week is better on the other end of the income statement. Sirius XM's net income of $316 million, or $0.08 a share, is a slight improvement over the $310 million it delivered in the second quarter of 2023.

Sirius XM continues to be profitable, even as its business is stuck in a decade of the slowest fade-out you'll ever hear. The scalable model is a money machine, even in the platform's current state of sluggishness. The company expects to generate $1.2 billion in free cash flow this year.

The media stock is doing its part by returning money to shareholders. It packs a yield currently just above 3% and is also returning money to investors through aggressive buybacks. Its fully diluted share count has fallen from more than 6.8 billion at its peak in 2012 to less than 3.9 billion now. The move helps prop up earnings on a per-share basis, where Sirius XM is now trading hands for just 10x trailing earnings.

The long-term outlook is fuzzy for Sirius XM, but the company can thrive in this climate as long as the declines don't start to accelerate. With Spotify increasing prices in back-to-back summers -- a 20% to 30% increase over the two hikes -- it does make Sirius XM a more compelling value.

Cautious investors may want to wait for signs of stability at Sirius XM but by then, the buying opportunity will be over. It's a risky stock despite its high yield and low earnings multiple, but with a chance to increase prices in the current climate and confusion about its tracking stock likely coming to an end next month, it could be a risk worth taking.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy .