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.
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.
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.