Seeking Alpha
Profile| Send Message| ()  

After carefully reviewing some of Sirius' financial statements, I've decided to pullback my clients' investment. The company produces impressive margins, but the prospects for growth are just not there. After contemplating selling the stock for some time, I think it is time to pull the trigger.

The graph below shows the subscription increases over the past 5 years. On a quarter over quarter basis, the general trend appears to be upwards but growth is slowing. There are little to no signs of any large boost in subscribers in the coming years. Sure, there will be slight quarterly gains, but not enough to push the stock price to levels where anyone can make a real profit. The company just isn’t generating the number of subscriptions necessary to push the stock price higher. It took the stock almost 3 years to break above the $2 price level, which it held for about a month and a half below dropping below it again.

I will further emphasize my point by directing you to a graph of the company's sales on a quarterly basis-- they are stagnant. In fact, if we look back to 2003, sales have been declining on a quarterly basis like clockwork.

On the brighter side, the margins are rising, which is a sign of strong corporate governance. Sirius is certainly cost effective in its strategy, helping to boost the company's bottom line. I have no doubt the company will continue to produce decent results given its loyal subscription base. However, the increase will not be enought to push the price higher.


However, the pool appears to be running dry for new subscribers. In order to combat this problem, Sirius has elected to introduce 3-month trials in pre-owned GM vehicles. I admire this strategy but it appears that Sirius is grasping for straws. For example, the company gives special attention and dedicates a station to the Indy 500. This strategy is basically ineffective in my eyes because fans are unlikely to subscribe for 1 event. Additionally, the current base of subscribers generally listens to only Howard Stern or the various music stations. Sirius gives some of its stations to other special programming, but this strategy is just not effective in terms of reining in new customers. Its equipment is also bulky and quite an eye sore. My radio (a gift) is large and bulky, requiring 3 separate wires to be connected in order for it to work. The resulting setup has caused numerous problems and appears messy to any guest lucky enough to ride in my passenger seat.
Another troubling sign for the company appears in the balance sheet. If we look at liquidity ratios for the company, the cash ratio along with the quick and current ratios are producing poor results. Each has remained firmly by 1 for years. As the company continues to contract liabilities and obligations, its ability to grow will remain a challenge.



The company is still profitable, and will likely be for the future, but I have seen nothing in the financial statements that seem to indicate any type of growth. Various measures of cash flows show quarter-to-quarter wiggles but the growth just isn’t there. Until I see a strong, effective strategy in place by management that aims to grow subscribers, it is tough for me to recommend this company to any of my customers.

I will leave you with a chart comparing the company to its peers. The chart details subscriber revenue and its decline on a year over year basis while some of its peers are posting solid results. The "LY" represents a period from Mid-July 2011 back through July 2010.

Click to enlarge



With the likes of Pandora now offering free music accessible through smart phones, and not eating up data, it is only a matter of time before SIRI becomes a "sell."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: A Sirius Sell: Examining Liquidity and Growth Prospects