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When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it in the market. However, making the best decisions for your investments can be challenging. Fortunately, investors can minimize risk by weighing both the pros and cons of a given stock before deciding how to act. Today, we'll take a closer look at Sirius XM Radio (Nasdaq: SIRI  ) and evaluate whether investors should buy, sell, or hold this media stock.

The satellite radio company is proving to the world that it can command pricing power. Sirius raised its rates earlier this year in a move that caused many analysts to worry that the price hike would cause subscribers to jump ship. In fact, the opposite occurred. In its last quarter, Sirius reported better-than-expected subscriber growth to the tune of 622,042 net subscribers.

Successfully raising the monthly fees it charges users is no small triumph. Take Netflix (Nasdaq: NFLX  ) , for example. The video streaming service provider was crushed after attempting to increase prices by about 60% in some cases. Thousands of Netflix customers were outraged as a result of the price hike, which ultimately led to 800,000 cancellations and the stock losing as much as 77% of its value in the weeks following the announced price bump.

Luckily for Sirius, the move provided further evidence of the company's loyal fan base of paying customers.

Sirius is benefiting from a recent rebound in auto sales as well, which I suspect will continue into 2013. In fact, most new and pre-owned vehicles in the U.S. come equipped with Sirius XM. Better still, if you're lucky enough to own a new Aston Martin, you'll also receive a complimentary lifetime subscription to the satellite radio service.

As my fellow Fool Rick Munarriz points out, the company now has a whopping 22.9 million active accounts in North America. For comparison, rival satellite service provider DIRECTV (Nasdaq: DTV  ) claims fewer than 20 million subscribers in the region.

Investors will get a more thorough read on the company's financial health when Sirius XM posts its latest quarterly results next month. I'd be surprised if we didn't see a significant boost in revenue given the 12% price increase on monthly subscription fees. 

Increased competition in the space is something potential investors should consider. New forms of media are constantly popping up in the broadcast radio industry, which means a stock's position in the market can fluctuate rapidly. New streaming services from contenders such as Pandora (NYSE: P  ) and Spotify could pose a future risk to Sirius XM, as these companies provide alternative broadcast options at a fraction of the cost to listeners.

These Internet radio firms use a freebie model to attract customers to their service. At last count, Pandora had more than 51 million active users. The company also recently kicked off its expansion initiative overseas, with trial services now running in Australia and New Zealand.

The push overseas should help Pandora grab new listeners, although that doesn't matter as much as it would for Sirius since those users don't pay for the service. Pandora's reliance on ad spending could weaken its position in the industry given the slow economy. Still, to remain competitive Sirius needs to maintain its focus on offering quality content.

Let's see how Pandora's stock measures up to Sirius XM in terms of price performance.

SIRI Chart

SIRI data by YCharts

Another major concern for investors is how the battle between Sirius XM and its largest shareholder, Liberty Media (Nasdaq: LMCA  ) , will be won or lost. Liberty currently has a 46% stake in Sirius. But if Liberty Media CEO John Malone has his way, it will likely end in a spinoff of the satellite radio business.

The war between the two companies was waged earlier this year when Liberty Media made an appeal to the FCC to take control of the satellite-radio provider. Fool Michael Lewis suggests that perhaps a better way for investors to get exposure to Sirius XM is by buying shares of Liberty Media.

On the other hand, more conservative shoppers may want to hold off on shares of Sirius XM until the company reports quarterly earnings on Aug. 7.

Final thoughts
Six months ago, I wasn't confident in Sirius XM's ability to realize revenue and drive growth. Today, I hold a different opinion. Having carefully weighed the risks and rewards in this name, I now find myself in Rick's camp with the bulls. Sirius XM continues to grow its subscriber base, despite tough competition and regardless of a steep price hike. That's why I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS.

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Fool contributor Tamara Rutter owns shares of Netflix and Liberty Media. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (6) | Recommend This Article (7)

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 July 23, 2012, at 10:43 AM, indycolt17 wrote:

    Still not sure why the 'experts' lump Sirius in with music service providers. I view Pandora as a music alternative to just one part of Sirius. My iPod is also a music alternative...and for convenience, a much more viable alternative. Sirius' only real competition continues to be terrestrial radio....and, well, there's a reason sat rad was developed and continues to be so popular.

  • Report this Comment On July 23, 2012, at 2:24 PM, dsandman999 wrote:

    The article should make the authors views a bit more clear as to timeframes. From what I am reading, the hold is a short term issue expected to be cleared up in the near future. The Buy is for a Long invester. And the sell is for a very long investor watching the trends. Nothing out there now is really able to eat SIRI's lunch near or even medium term (2 to 3 years).

    Echoing indycolt17, many folks are comparing the competition as if it were a complete alternitive to the SIRI product, which none of them are. I would also put out there, that the audiance SIRI is most successful with are the folks that tired of commercials, tired of trying to figure out and keep up with all the user interface changes, have no desire to spend significant time coming up with play lists, nor do they want to hear later, what do you expect for a FREE service...

    I believe the demographics of baby boomers increasing far faster than young folks also puts a premium on services that fit that crowd. Being a baby boomer myself, I am quite happy to listen to 80's on 8 when I am tired of top 40. I like palying my own trivia game by listining to the 40's 50's 60's and 70's music to see how many of them I know or even recognize.

  • Report this Comment On July 23, 2012, at 4:26 PM, m55555 wrote:

    I'm glad to see that you are finally comming around to sirius,the partnership with AT&T,IS ANOTHER PLUS,content content content,the are far more ahead of this game than most people now,Pandora and spot is alright for music ,but bottom line our core is people that have the money to want to here the cnbc,baseball,howard,nfl,and on and on,Rick you knew that this was'nt a fluke,and I 'm glad that you yourself came around to see this is'nt going anywhere for yrs. to come so welcome aboard guys,thanks for your artical,and go sirius sat entertainment..........

  • Report this Comment On July 23, 2012, at 6:49 PM, southernbeachguy wrote:

    See, if you had listened to Rick and the rest of us that have been here for years, you could now be up 9.41% YTD. $15 per month isn't a bad price to pay for the programing that we are getting. Evidentally, people that use it realize that. Sirus will be a good investment at least for 2-3 more years and we can evaluate as we go.

  • Report this Comment On July 23, 2012, at 10:39 PM, doubting wrote:


    Only "fools" and/or bashers do not realize that Sirius is here to stay for the foreseeable future. Look at the sub growth trend: Q4, 2011 - 550K sub; Q1, 2012 - 405K subs; Q2, 2012 - 622K subs. Q3, 2012 will cross the 500K margin without any doubt in my mind. We are talking real growth numbers here.

    Siri will continue shadowing OEM growth; siri will continue garnering almost "free" subs via used car market (I expect up 1M used car market subs in 2015-2016); sat radio 2.0 was just released and is already making inroads; on demand and personalization are coming this year. This is more than enough to help the company cross a 2M sub threshold per year and may be even approach 3M annual subs in the next five years.

    We are looking at a chain reaction that will lead to a leap in (1) brand recognition in parallel with hundreds of millions in (2) ad revenue. I will not be surprised if siri starts growing revenue around 20% for a number of years.

    To conclude, siri is a monopoly in the dashboard offering unique quality of true radio unlike other juke boxes. Siri is becoming ubiquitous, and within the next three years will have the highest margins in media industry reaching 40%+ due to the above described and lots of other factors that are innate to an evolution of an easily affordable monopolistic business. The company is absolutely unique in its ability to generate dozens of high quality programs while owning 100% of its ground and space infrastructure and most of the content. Sirius is the ONLY GAME IN TOWN. This reminds me of apple’s iPad or iphone (that does have quite a bit of competition). If you want to make real money off radio sports broadcast, you go to Sirius, and Sirius only. You do not have anyone else to negotiate with. Such situation is so rare that I wonder how come the industry missed siri and let it run so far away! Siri is like a world class marathoner who is one mile ahead of its competitors, and those who know what this means are able to appreciate this comparison.

  • Report this Comment On July 24, 2012, at 10:47 AM, TheeShawn wrote:

    "and regardless of a steep price hike"

    And when did this occur? Was the price doubled? Did it go up 25%?

    Oh that's right, it was about 15%, which after years of no increases, is hardly steep if you ask me.

    Netflix raised theirs 25% 10 months earlier in Dec/Jan, then another 60% in Sept. That WAS steep, the Sirius increase wasn't anything close to what Netflix did. The fact "analysts" pitched apples to apples comparisons is proof many "analysts" are just marketing guys in disguise imo.

    I got out of my Sirius stock a month ago, I don't trust Malone. Had he stayed away I'd still own it.

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