I'm currently reading The Wisdom of Crowds by James Surowiecki, and I think the author makes some excellent points. However, there are times when the crowd descends into mob mentality, and as I've said before, I think that much of the crowd that invests in Sirius Satellite Radio
I'm no stranger to satellite radio, and I admit it's a fascinating technology, one that has certainly led many of us to think that terrestrial radio has seen better days. I even invested in Sirius rival XM Satellite Radio
A long time coming, indeed! Even after all this time, neither of these companies is profitable. And that's not going to change any time soon, as each continues to bulk up its content, technology, and marketing.
Speaking of time, the music industry is seeing its fair share of disruption, most notably from the explosive growth of digital music distribution and Apple's
As for the Howard hype machine . well, I don't even want to talk about Howard. It seems to me that the Howard halo effect should wear off sooner rather than later, since it stands to reason that his most diehard fans likely signed onto Sirius quickly and should drop off rather rapidly as well.
On a macroeconomic level, there's reason to believe that the short term may be difficult. The high cost of living, rising interest rates, and concerns about gas prices should put a crimp on many consumers' spending --even the folks with disposable income that Sirius and XM hope to woo. Satellite radio is a fun technology, but I can't imagine it's a need-to-have product when penny-pinching is in order.
And while both companies have agreements with many major automakers, the woes of some of the manufacturers, like Ford
The risks I've outlined here are reflected in the numbers. Sirius may be adding subscribers at a faster clip than XM at the moment, but the company has to pay a pretty penny to acquire those subscribers. Furthermore, Sirius trades at a whopping 19 times sales, with $1.08 billion in debt on its balance sheet.
Sirius's shares have dropped 26.5% during the last 12 months. I don't consider that an opportunity to buy, seeing how the next several years should provide plenty of volatility -- especially since profitability isn't expected anytime soon. Sirius is most definitely a stock for tomorrow -- literally. Investors have a few years before they need to contemplate getting serious about Sirius.
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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.