How Important Is Sirius XM 2.0?

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In late April, we asked three Fool contributors what Sirius XM (Nasdaq: SIRI  ) had to do to get its share price above $2.00. Most of their responses contained something of a similar theme: Sirius XM 2.0 is going to have to be the kind of service that really moves the needle.

Well, in retrospect, the new Sirius rollout didn't even have to arrive -- Sirius floated well above $2.00 per share for quite some time, closing at $2.37 in late May. However, now it's back down in the $2.00 range, so we decided to go back and check with our analysts to see exactly how revolutionary Sirius 2.0 really needs to be.

Anders Bylund, Fool contributor
If there were awards for worst-kept secret of the year, Sirius 2.0 would win 'em all hands down. It's like Netflix going overseas or Apple (Nasdaq: AAPL  ) launching a cloud-based music service -- we all know it's coming and have been talking about it for years. While the exact feature set of Sirius 2.0 in the shipping version is up in the air, the only question that matters to us investors is, how successful will it be?

All three examples here are potential game-changers. Netflix can collect untold millions of subscribers abroad, Apple needs a next-generation music service in order to stay relevant, and Sirius lives and dies by how its customers respond to version 2.0.

Depending on exactly which rumors pan out, the new Sirius service could become a radio version of the TiVo (Nasdaq: TIVO  ) DVR or even a satellite-based take on Pandora's personalized media feeds. Either option would move Sirius a large step closer to state-of-the-art entertainment features of today's smartphones, and with a much smaller bandwidth hit.

So yeah, Sirius 2.0 will change the game -- but everyone already expects it to. It would take a feature set of surprisingly epic proportions to move the stock very far north when it's announced. Otherwise, the true value (or lack thereof) becomes evident over the long haul.

Rick Aristotle Munarriz, Fool contributor
Sirius XM 2.0 will reportedly be an Android-fueled platform with more channels, TiVo-style time shifting, and on-demand features of its more popular programming. The key is what it will do with Google's (Nasdaq: GOOG  ) Android to raise the bar.

The dashboard's getting pretty crowded these days, especially for smartphone owners. Toyota's (NYSE: TM  ) Entune streams Pandora, maps out roadways, and even facilitates the making of dining reservations and the buying of movie tickets.

As premium radio, Sirius XM will need to make sure that it's better than the growing number of free Bluetooth-enabled options for smartphones. It will be an easier bar to clear for drivers lacking smartphone connectivity, but that's a gradually shrinking market.

 Sirius XM 2.0 will have to be revolutionary -- and not just evolutionary -- to move the needle. CEO Mel Karmazin has to know that much, and it's probably why so little about the next generation of satellite radio receivers is concrete. This is an unfinished platform that will have to be huge given the inevitable subscription plan rate hike coming next year.

 If Sirius XM 2.0 can build on Android to create an irreplaceable experience, conversions will go up, churn will go down, and the share price will go way up.

Tim Beyers, Fool contributor
Oh, why didn't I take my own advice? Back in October I picked Sirius to outperform in my Motley Fool CAPS portfolio. The stock is up more than 50% since, and we've yet to see Sirius introduce its much-ballyhooed 2.0 radio platform.

There's a lot to like about what Sirius is planning. New channels. Time shifting. And finally, Android support. All of it points to Sirius XM transforming your radio into an applications and delivery hub not unlike Apple's iPhone. Sound crazy? Maybe it is.

 Whether or not Sirius is gunning to replace smartphone and Garmin (Nasdaq: GRMN  ) connection kits with radio 2.0, I think this hypergrowth stock is still reasonably priced at 29 times next year's consensus earnings estimate.

What do you think? Is Sirius 2.0 able to boost the company's stock or is it all priced in? Let us know in the comments below.

Anders Bylund owns shares of Netflix and TiVo. Tim Beyers owns shares of Apple. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Google, Netflix, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2011, at 9:52 PM, baldheadeddork wrote:

    Can we take a moment to bask in the glow of SIRI having a P/E of...200:1 - and that's without including one of Mel's 2.4 billion unredeemed warrants.

    So the real P/E now is somewhere north of 350:1 and if the analysts aren't grossly overestimating future earnings (that never happens), at the end of 2012 you'll have a company with a P/E around 50:1 and $7 billion in debt.

    Tim asked is it all priced in? Not as long as they come through with the s**t gold from the speakers channel. A 350:1 P/E has already factored in live virgin birth every Thursday on Howard Stern and the ability to tilt the receiver and pour a beer. A real beer, too. None of that Bud Light swill.

    But even with those breakthroughs I don't know if they can make SIRI shareholders at the end of 2012 feel better about holding a stock that hasn't moved since June 2011 even while earnings have nearly doubled. Remember, for SIRI to achieve that "reasonable" valuation of 30 or 50:1 at the end of 2012, the stock can't go higher than it is today.

    If Sirius 2.0 is priced in is irrelevant. Even if they do hit the ball out of the park, it's going to be a dead-money investment for years if the valuations are going to return to the norm for a bubble stock.

    And if the Fool were serious about it's "Get rich slowly" motto, the only reason the editors would ever write about a stock like SIRI would be as an example of where you shouldn't put your money.

  • Report this Comment On June 13, 2011, at 10:39 PM, plange01 wrote:

    the shorts are finally in control of siri's future and it does not look good...

  • Report this Comment On June 14, 2011, at 7:53 AM, titus77 wrote:

    The short float for SIRI is only 8%, explain how they are in control.

  • Report this Comment On June 14, 2011, at 3:35 PM, mcash454 wrote:

    I reserve the right to be wrong, but I just don't see how any platform with significantly less flexibility and/or transportability than a smartphone can expect to charge subscription fees for very similar products and services that smartphone users can already get for "free" (included with the phone / data plan). The same goes for a garmin GPS system streaming music or a Nook that can surf the internet. Integration ONTO the smartphone is the way to go.

  • Report this Comment On June 27, 2011, at 8:00 AM, frannieruthk33 wrote:

    on June 13,2011 plange01 wrote the shorts are finally in control of siri"s future and it does not look good - I think that the short's will eventually go long. As I mentioned before, Siri XM is in a class of its own. Sometimes, all good things come to those who wait.

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