The research we do for members of our Inner Circle service turns up many intriguing stories on growth stocks, often in the ultra-competitive high-tech world. Here’s a question about the prospects of Sirius XM Radio (symbol SIRI on Nasdaq) from our latest weekly Inner Circle Q&A, in which I answer questions from our members. Sirius has a big customer base, but it’s not that easy to outdistance the competition. In our search for growth stocks, we look for a strong market position. And if Sirius can hold its current position, it will fit our profile for growth stocks. But that’s not guaranteed. Q: Do you recommend Sirius XM Radio? Thank you. A: Sirius XM Radio, $1.69, symbol SIRI on Nasdaq (Shares outstanding: 6.8 billion; Market cap: $6.9 billion; www.siriusxm.com), broadcasts by satellite about 135 satellite radio stations in North America. Around half are commercial-free music stations. The company offers a wide variety of music channels, including rock, pop, heavy metal, hip-hop, country, dance, jazz, Latin and classical. Sirius also has sports, news, talk, entertainment, traffic and weather channels.
Growth stocks: Sirius makes its living on subscription fees
Subscription fees supply about 86% of the company’s revenue. Right now, almost all of that revenue comes from car-radio listeners. Sirius also provides music and other programming that users can access through mobile phones and the Internet. Advertising fees supply about 2% of Sirius’ total revenue. Besides music, Sirius sells radios and accessories for cars, trucks, homes and offices. It mainly sells its radios through automakers, electronics stores and car-radio dealers. It also sells its products through its web site. On June 30, 2011, Sirius had 21.0 million subscribers, up 7.6% from a year ago. That’s the main reason why the company’s revenue rose 6.4% in the three months ended June 30, 2011, to $744.3 million from $699.8 million a year earlier. Sirius earned $173.3 million, or $0.05 a share, up sharply from $15.3 million, or nil per share. Sirius holds cash of $528.3 million, or $0.08 a share. Its long-term debt of $2.7 billion is a high, but not overwhelming 38.6% of its market cap.
Growth stocks: Sirius must compete as smartphones come to car radios
The U.S. Federal Communications Commission (FCC) has approved Sirius’ request to raise its subscription prices. As well, the company is no longer bound by a three-year pricing freeze. That was part of the commission’s 2008 decision to approve the merger of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. Sirius and XM were technological pioneers when they first offered satellite radio delivery to the public. However, their sound quality still trails behind FM radio. More important, the merged company’s content will soon face a broad challenge from the Internet. That’s particularly true as automakers install technology like dual Bluetooth, which lets users stream audio from Bluetooth-enabled devices, such as smartphones, to car stereos. For example, recent new issue Pandora Media, symbol P on New York, offers a personalized Internet radio service that lets users create their own custom radio stations. Another Internet radio site is Europe-based Spotify.com. Both companies insert advertising in their services, but users can pay a fee to bypass the ads. Google and Apple are likely future competitors in car-audio service. For the moment, the company’s satellite delivery system offers a key advantage over its Internet competitors. Data charges remain high for streaming services through smartphones, but eventually those charges will come down. Note that Amazon.com’s Kindle delivers ebooks nearly worldwide through the international cellphone network, at no cost to its customers. We don’t recommend Sirius XM.
