When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it. 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. It is in this spirit that we'll take a closer look at Sirius XM Radio (Nasdaq: SIRI ) today, and evaluate whether investors should buy, sell, or hold this media stock.
Sirius XM continues to grow its subscriber base. In the second quarter, the satellite radio provider added 622,000 new members for a grand total of 22.9 million paid subscribers. This is particularly important for Sirius because unlike music streaming rival Pandora (NYSE: P ) , Sirius gets the bulk of its revenue from the monthly subscription fees paid by listeners.
On the other hand, Pandora mostly relies on cash from ad dollars. True Pandora customers may choose to pay for commercial-free content, though the majority of Pandora listeners leverage its free platform. Still, Pandora and other free-to-listen substitutes have so far failed to stunt Sirius' growth.
It's also telling that Sirius was able to successfully raise the monthly fee it charges listeners by as much as 12% without rocking the boat. This bump in subscription rates boosted the average revenue per subscriber to $11.97 in the second quarter. Any investor that doesn't see this as praiseworthy need only look to Netflix (Nasdaq: NFLX ) for proof.
For those whom need a refresher: Last year, the movie streaming company issued a 60% price hike for customers using both the DVD-by-mail service and Internet-streaming service. As a result, Netflix lost 800,000 subscribers and saw its stock plummet. As you can see, pricing power is critical to a company's success. Fortunately, customers are willing to pay more for access to the more than 100 programming channels on Sirius' satellite radio network.
Even the most promising stocks come with some degree of risk. For one thing, many investors worry that Sirius Radio is too reliant on the automakers for winning new subscribers. The problem with relying on automakers such as Toyota to funnel in new paying customers is that a slow down in car sales could put a damper on Sirius' healthy subscriber growth. Not to mention the added risk related to the fact that Sirius incentivizes its service by allowing Toyota and other automakers to offer their customers three months of free satellite radio.
This brings up the issue of rival music services. Pandora has worked out partnerships of its own with leading auto companies including Ford (NYSE: F ) . In fact, Ford's 2012 trucks come equipped with SYNC AppLink capability -- making it easy for drivers to stream online music through the truck's entertainment system from a Pandora app on their smartphone.
Another threat is new competition from Apple (Nasdaq: AAPL ) . The iPhone maker is thought to be working on an Internet music service that would directly compete with Pandora, and possibly Sirius XM as well. That said, Apple's competing platform will likely be designed more closely to Pandora's model than that of XM radio. However, as my fellow Fool Rick Munarriz highlighted earlier this month, Sirius is planning to rollout a service similar to Pandora next quarter.
Many analysts are concerned that the rise in smartphone use could hurt Sirius' lead as more drivers begin using their iPhone and Android devices to stream music for free. However, Sirius has done a great job of integrating its services with mobile technology. For example, as a current XM subscriber, I often use Sirius' Internet Radio feature for listening on my iPhone.
Current shareholders may want to stick around, considering Sirius plans to upgrade its online content offerings to include a Pandora-like service. Between its ability to compete with free-platform providers to its growing subscriber base, Sirius may be worth the wait for patient investors.
When it comes to digital media content and music-streaming services, it's still early in the game. Sirius XM continues to get more attractive as the industry evolves and the market for these services grows. Still, I'm going to remain on the sidelines for now. However, if you've considered buying shares of Sirius, I highly recommend that you check out the Fool's new premium research report on the stock. The report gives you in-depth analysis of key opportunities and risks facing Sirius XM Radio, as well as insight into the company's unique advantages. It also comes with a year of updates. To get your copy now, simply click here.