Sirius: Satellite Radio Has A Lot To Offer And Why It's A Good Investment

The biggest drawback to SIRI is their product. It's outdated. Internet on-demand, radio, podcasts, and the whole move to the internet of everything is making satellite radio obsolete. That's the problem. It's not about valuation, market data, or any other element. Cars are moving to become a separate entity on the web (see: Cisco's efforts in this among others). Internet content providers have much lower operating costs, that is why the space is crowded because barrier of entry is limited.

SIRI might change course and might develop technologies to overcome the competition, but it will be costly and it will require a significant change to their current direction.

Finally, do not think that because SIRI has more subscribers they have the better product or future. Read the Innovator's Delimma, it talks exactly about this situation where new innovative technologies that initially service small markets (e.g. Spotify and Pandora) move up the chain and start invading the incumbents of the bigger market (e.g. SIRI), and in a blink of an eye the incumbent loses favor quickly and realizes that he simply doesn't have the technological know-how to compete with the new demands of its customers who want internet on-demand and radio products. See BlackBerry and Apple iPhone.

Good luck.

SiriXM's current product is broadcast radio. Not internet on demand. It does seem outmoded compared to what one can do with Pandora and YouTube and ...

BUT SiriXM is better placed than anybody for taking advantage of the Web of Things as it involves cars, trucks, boats, off-the-road vehicles etc. The internet of things will come to cars. Imagine a day when your car company can tune your car's operating system (the one that handles fuel injectors, etc.) so it fits with where you live. Mountains? Extreme cold? whatever.

Why is SiriXM well positioned? Because the Web of Things is largely limited to things attached to the web thru land lines or local WIFIs. Vehicles need a different technology: cell towers.

This presents a small dilemma because broadcast technology from satellites will remain cheaper than from cell towers. Of course to join the internet, a car must be able to talk as well as listen and for that the cell phone towers are more efficient. The company that can take advantage of this dilemma will have the technology to do both. Rather like Direct TV with its downloads through satellites and uploads thru telephones. That operating system tweak can come to your car from the satellite. It may require lots of data. The need for it can will not require lots of data and can be uploaded via cell towers.

SiriusXM is well positioned to take advantage of this because it is (now) profitable and large. It can afford the costs of developing the Mobile Web of Things. It already that the expensive satellite hardware in place. Cell towers it can use like any other app. It already has the necessary contacts with car manufacturing. And it has acquired the expertise and it has the motivation. Here are some excerpts from what president Jim Meyer had to say in the Q4 2013 conference call:

"Now let me give you an update on our connected vehicles strategy. We know where the auto makers are going in this area, and we have a clearly defined strategy to execute and win in this business.
...
As an early stage growth business, we expect the connected vehicle services product line to contribute at or near breakeven on an EBITDA basis in 2014, but with high variable margins, a relatively low capex profile, and substantial scaling in the business as penetration expands
...
Just keep in mind the connected vehicle business is still in its very early days. Building this business is a key step in realizing our vision of a merged satellite and IP connected environment that will truly deliver amazing features to our subscribers and benefits to our business. The race we are running is a marathon, not a sprint."

Meanwhile their core business is doing well.

I will be buying into this but somewhat slowly as the PEG ratio is high. :-)

In its current Price/Value state, I would never consider buying SIRI. My first introduction to the company was earlier this year, when a purchase of a VW came with 6 months of free radio. Initially, I liked it, but as time went on, its preference faded fairly quickly. I asked myself: is this something I would pay $18 a month for? The answer, for me at least, is a resounding "No". Although there are no commercials, it is just as repetitive in its song choices as an AM/FM radio, it's another monthly bill (i.e. costs money), and it doesn't work under bridges or other obstructions. My car came bluetooth, which is what I assume all newer vehicles are being equipped with. I just stream Pandora via bluetooth; it doesnt cost anything (unless you want it to with anoptional subscription), you can create the exact station you want (instead of using pre-existing channels that are just approximations), and it doesn't cut out when under bridges or other obstructions. It provides roughly the exact same output as SIRI, but it doesn't cost anything. Additionally, using Pandora barely scratches the data plan on my cellphone carrier, so there are no incremental costs there. There is nothing that SIRI provides (that I can tell aside from being commercial-free) that can't be substituted for free with Pandora or another music/media app and a bluetooth connection that most newer vehicles come with anyway. Just my $.02.