Forget Twitter and Facebook; Sirius XM is My Favorite Technology Stock
Despite media attention on hot stocks like GoPro and Twitter, investors would do better with proven winners like Sirius XM Holdings Inc. (NASDAQ:SIRI). Rather than those who followed the latest fad, investors who bought SIRI stock five years ago would have made a 183% return.
Many analysts predicted the death of satellite radio when internet streaming exploded in popularity. Investors foolishly ate up the pessimism and sold off Sirius stock as quickly as possible. They ended up driving SIRI stock to the brink of bankruptcy.
Change often breeds panic, and in finance, panic can bring even the best of companies to their knees. That’s basically the story behind Sirius XM, but the company recovered for a simple reason: people like listening to radio.
SIRI Stock Could Rise Even Further
SIRI stock is fairly inexpensive, trading at $3.89, up from $3.17 a year ago. The company’s one-year price gain is almost 23% because investors finally realize that Sirius XM is here to stay.
Chart courtesy of www.StockCharts.com
And here’s the best part: the stock has even more room to run.
In a telling move, the National Football League renewed its deal with Sirius XM. The contract provides Sirius XM the right to broadcast every NFL game live through the 2022 Super Bowl. (Source: Sirius XM, NFL Extend Deal For Six More Years, The Wall Street Journal, October 7, 2015.)
What’s most important about this deal is its length. The NFL’s willingness to sign a six-year contract with Sirius XM shows the staying power of satellite radio. Anyone holding SIRI stock should take this as an excellent sign.
Moreover, the company’s fundamentals are strong. Sirius XM added another 692,000 subscribers in the most recent quarter, bringing the total audience to 28.4 million. (Source: Sirius XM 10-Q Filing, Securities & Exchange Commission, October 8, 2015.)
The guidance for subscriber growth in 2015 was raised to 1.6 million, up from an initial estimate of 1.2 million at the start of the year. Only five million of those customers were there as a result of promotional campaigns.
The remaining 23.4 million generated $940 million in revenue, reflecting a seven percent increase from the same quarter a year before. However, Sirius XM stock didn’t get much of a lift from the news because bottom line figures were distorted.
The company paid $108 million to settle a decades-long dispute over royalties. The one-time hit decimated net profit for the quarter, but the broad trend reveals an accelerating business. Satellite radio is alive and kicking.
All this and more convince me SIRI stock could be worth far more than its current price. The market has not priced in the staying power of satellite radio.
The Upside for Sirius XM Stock
On average, an ordinary American drives nearly 30 miles every day. You can create playlists or stream your favorite podcast, but eventually, data charges and the effort of curating new music catches up.
Long commutes to and from work can get boring. Browsing through radio stations is the best option when you’re stuck in traffic, mainly because it creates the chance to hear something new.
In an age when the algorithms of Google and Twitter shape what we see and hear, there’s a quiet thrill to finding something utterly by chance. By scrolling through the airwaves, we open ourselves to a moment of discovery. This can be a wonderful thing.
But free radio broadcasts are constrained in format and resources. The shows are funded through advertising revenues, making them beholden to sponsors. Sirius XM, on the other hand, relies on an enterprise model.
Customers pay a fee to access Sirius content. This includes a broad range of programming, including channels for sports, entertainment, news, comedy, and music. Sirius XM is only beholden to its customers.