Sirius XM Radio
Yesterday, CNBC highlighted Pandora's inroads into the mobile radio market, attracting more than 65 million registered listeners in the U.S. But Pandora isn't the only competitor Sirius should be worried about. All sorts of apps are popping up, from Slacker Radio, which offers a similar experience to Pandora; to iheart Radio, which provides radio stations from around the country; and even to Howard Stern, who has threatened to develop a premium app for smartphones. ESPN has also built a radio app offering football games, podcasts, and audio from popular television shows. Apps for smartphones are relatively easy to build, don't require a large capital investment, and can be used on a variety of devices.
Sirius has seen a financial turnaround, but its operations are highly leveraged, paying fixed contracts to talent and upkeep on infrastructure. So, Sirius' financial performance can go south as fast as it has improved. It also has more than $3 billion in long-term debt, a huge load if Sirius can't keep adding subscribers.
I'm not suggesting nearly 19 million subscribers will disappear overnight, but I am saying investors need to watch Sirius' subscriber totals closely in coming quarters. The company has done well keeping subscribers thus far, with a low 1.9% churn rate in the first half of 2010 and increasing revenue per subscriber, but earnings have yet to exceed $50 million in a quarter.
Analysts are expecting another year of weak profit with $0.01 earnings per share in 2011. With a $5 billion market cap, that's equivalent to a forward price/earnings multiple of more than 100. I think investors have gotten ahead of themselves on this one.
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