In 2008, Sirius and XM merged to create Sirius XM Radio Inc (NASDAQ:SIRI), which provides satellite radio service to about 23 million subscribers. Around the time of the merger, there was rampant skepticism about the viability of satellite radio as a business, and some analysts and reporters were predicting the company’s imminent demise. Bear in mind, this was during the same time period that all you heard from the financial news media was “the sky is falling!” and other phrases to that effect.
As a result, stocks all across the market took a beating, and Sirius XM suffered more than most, trading as low as 5 cents per share in 2009. I bought some at around 9 cents per share that year, and sold when it doubled to 18 thinking I had made a genius trade! Since that time, however, Sirius has proven itself (for now, anyways) to be a viable company, turning a small profit beginning in 2010. Now trading at around $3.15 per share, or 6200% above its low (wow!), investors are faced with a tough decision.
While anyone who bought in anywhere near the lows would be silly to not take some profits off the table, is there an even brighter future for this stock? With the company set to report earnings Feb. 5, investors might just get a better picture of where this company is heading.
Earnings and Revenue
Sirius was notorious for hemorrhaging money for many years (see below), and in several years, lost more money than there shares were worth. However, with the company now profitable, will this company continue to grow its subscriber base and revenues over the coming years?
However people have felt about satellite radio as a business, there is no argument that Sirius XM has done a great job growing the popularity and subscriber base of their services. Through factory-installation programs with almost all auto manufactures, the company has grown its OEM distribution channel tremendously.
One revenue source not fully capitalized on is the company’s modest stream of advertising revenues, which Sirius XM has said it intends to improve on in the coming years. Any discussion of this during the earnings call would be welcome news to shareholders. At any rate, the company has done a great job of growing its revenues, from less than a million dollars in 2002 to almost $4 billion annually now.
Aside from terrestrial radio, whose popularity has been on a steady decline for years, the most serious threat to satellite as a business, in my opinion, are internet radio services such as Pandora Media Inc (NYSE:P). With the growing popularity of smartphones and other mobile devices, it is easy to simply plug my iPhone into my car stereo and open the Pandora app.