I've got a time machine, and I'm not afraid to use it.
I'll be taking treks to 2014 -- for amusement purposes, naturally -- to see what some of the more popular companies that I follow are up to in the future. I checked out China's leading search engine yesterday. Today, I'm pumping up the volume on satellite radio giant Sirius XM Radio (Nasdaq: SIRI ) .
Channel 2014 on your satellite radio dial
It's been a whirlwind three years for Sirius XM. The media giant hit 23 million subscribers during the summer of 2014. That may be a little slower than bulls had predicted when Sirius XM barreled through the 20-million mark in December 2010, but there were a few hiccups along the way.
A rate hike in late 2011 ran into some resistance, with a temporary uptick in churn. Most new cars are also rolling out with dashboard gadgetry that delivers free Internet radio, real-time routing, and other forms of ear candy to owners of smartphones at reliable speeds and sonic quality -- even to those tethered to older 4G handsets.
For satellite radio, however, the picture's not as bleak as it seems. Sirius XM is making more money off its subscriber base, and not just from the slightly higher monthly rates:
- A website makeover in 2012 transformed its ho-hum channel pages into sticky social-networking hubs. Vetted artists pay for the right to sell tracks, concert tickets, and other merchandise. Display advertising fills in the monetization gaps.
- Interactive receivers provide new revenue streams. Liberty Capital (Nasdaq: LCAPA ) -- still clinging to its 40% preferred share stake in 2014 -- helped broker a deal with Liberty Interactive's (Nasdaq: LINTA ) QVC for satellite radio's first shopping channel.
- Taking a page from TiVo's (Nasdaq: TIVO ) playbook, interactive receivers also allow Sirius XM the ability to sell song downloads or whatever talk guests are pitching, and let users request more information from advertised spots. Obviously, advertisers pay more for these sponsored opportunities.
- And copying off Netflix's (Nasdaq: NFLX ) playbook, Sirius XM is using streaming as a more feasible international expansion vehicle The service is just getting off the ground in select countries. There are licensing hurdles and ad-supported competition, but it's at least helping with global brand awareness.
Rolling with the changes
Sirius XM still has friends in the automotive assembly lines. When General Motors (NYSE: GM ) became an initial XM investor, and Ford (NYSE: F ) became one of the first to back the factory installation of Sirius receivers, they didn't do so out of the kindness of their Michigan-sized hearts.
Automakers have always received royalties from Sirius XM, and those payouts for active subscribers continue in 2014. New and certified pre-owned cars come with shorter trials, and despite wireless alternatives to radio, the stakes are high enough that Ford, GM, and the rest of their car-assembling peers still find ways to market Sirius XM 2.0 receivers, which make it easier to access both Sirius and XM.
Ford and GM have much healthier balance sheets in 2014 than they did years earlier, but financial incentives still matter.
Milking the tax advantage
Sirius XM has been consistently profitable through 2014, but it still has billions in tax-loss carryforwards at its disposal.
Margins have gradually improved at its flagship business, but this still isn't the high-margin scalable model that some bulls had been hoping for.
To make the most of its ability to offset gobs of future tax bites, Sirius XM continues a strategy that began with its push for high-margin online ad revenue in 2012. It's been making tactical acquisitions of earnings-accretive companies. Sirius XM even made a play for Pandora shortly after its late 2011 IPO, but sticker shock drove the satellite radio giant to opt for smaller upstarts -- in everything from streaming to digitally savvy artist management -- that were already in the black.
The company's bankrolled those buyouts through stock and free cash flow. Sirius XM has actually been able to shave some of its debt, though refinancing is no longer the nail-biter it was in 2009.
What else am I forgetting? Oh, Sirius XM never declared a reverse stock split. Its stock never fell below $1 again. By the spring of 2013, it also never dipped below the $2 mark. The stock isn't the blazing winner it was in 2009 and 2010, but it has been able to beat the market through 2014. Investors have replaced speculators, and the stock no longer routinely tops the most actively traded or shorted stocks.
Sirius XM is here to stay, and investors in 2014 won't look that kind of gift horse in the mouth.
Have a different take? Where do you see Sirius XM in three years? Share your thoughts in the comment box below.