Satellite radio is the real deal.
On Monday, we learned that Sirius XM Radio
There may be more than a few company-specific concerns, of course. With the equivalent of 6.5 billion shares outstanding -- more stock than only a handful of companies -- we're talking about a market cap of $13.5 billion. Sirius XM is still susceptible to the ups and downs of the automotive industry. Its largest investor is trying to wrestle away de facto control.
However, there are solid reasons to hold on here. Let's go over a few of them.
1. Raising guidance is the norm for Sirius XM
There was only one time that CEO Mel Karmazin had to eat his words. It was late 2008, and both the economy and automotive industries were teetering. Sirius XM's rosy projections just weren't happening, so Karmazin hosed them down.
The fallout wasn't pretty. Sirius XM went to shed net subscribers during the first and second quarters of 2009, but that's the only time satellite radio as a platform has closed out a quarter with fewer subscribers than when the period began. It was also the only time Karmazin had to lower his company's fiscal outlook.
It's been smooth sailing since then, and a constant through the past three years has been that whatever Karmazin projects in terms of subscriber, revenue, and cash-flow growth won't be enough. It'll all be revised higher a quarter or two later.
Even Monday's raised targets -- calling for 1.6 million net subscriber additions and $3.4 billion in revenue -- seem woefully conservative. Auto sales have been strong, soaring 22% last month. Even Ford's
Between strong auto sales and January's rate increase, don't be surprised if subscriber and revenue targets continue to move higher during the latter half of the year.
2. Liberty Media is a validator
John Malone's Liberty Media
Why would Liberty Media be moving so quickly? Why be a buyer rather than a seller? Could it be that Malone and his savvy cast of puzzle builders at Liberty Media know that Sirius XM will be worth more in the future?
3. Internet radio is more of an opportunity than a threat
Cynics have been quick to call satellite radio a transitory technology, pointing to the rise of Pandora Media
There is certainly merit to the argument that streaming is an explosive industry. Pandora's now serving more than a billion hours of music a month. Spotify has exploded on the scene since washing ashore last summer. Clear Channel's (NASDAQOTH: CCMO.PK) iHeartRadio has landed 10 million registered users since its star-studded relaunch last fall.
However, Sirius XM is more popular than ever. Whether you prefer to consider the rise in the satellite-radio giant's subscriber base by more than a million over the past six months or by nearly 1.9 million over the past year, it's clear that the platform is still gaining ground despite the booming smartphone and online streaming market.
As Sirius XM improves its own premium streaming product, it will be a beneficiary of this trend.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
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The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and creating a synthetic long position in Ford. We Fools don't 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.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns shares of Ford and Liberty Media and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has a disclosure policy.