One headline today was that JP Morgan Chase posted a better than expected profit. Another was that housing starts are not as good as expected. The economy is not yet recovered, but at least now there are sparks of good news that seem to give people hope that things will get better. The question is how soon?
Sirius XM Radio has a core group of loyal subscribers who have seen the value in the service, and simply will not give it up. It is these subscribers that will build the foundation of the success of the satellite radio business model. Yes, a tough economy makes it difficult to bring new subscribers in the door, but the loyal group of those that simply can not be without the service will continue to grow.
Across many business sectors, the gears of the economy seem to be trying to start again. Things in motion tend to stay in motion. Things at rest seem to stay at rest. There was a period not to long ago that everything ground to a halt. Getting real movement again will be a process. In my business I have seen projects that went on hold a month ago seeing new signs of life now. The scope of those projects has been scaled down, but what everyone seemed to recognize is that sitting still was not a solution.
For Sirius XM Radio, the current plan has to be continued synergy savings, scaling back, and maintaining a level of service that keeps the core happy. As the economy gains steam, so will Sirius XM Radio. The company is in a careful balance that requires a level of cautiousness. That being said, there are several inexpensive things, such as twitter and facebook that the company should embrace. The company should give serious consideration to expanding their on line presence, and creating a social network that allows people that are not yet subscribers to experience the product. Three of the top 10 downloads on Blackberry App World are free music services (Slacker, Pandora, and Clear Channel's IheartRadio). Sirius XM needs to gain this type of exposure now in order to best benefit from an economic turn around.
When the time comes that car sales improve, the bad mortgages are flushed out of the system, and people have a bit more confidence, a service such as Sirius XM will benefit. Especially if they lay the foundation now. The company is on the cusp of getting out an application for the iPhone (albeit later than many had hoped for). The company has the potential to combine merger synergies with Liberty Media synergies. Sure there will be some bad news. Investors should not hold out high hope on the subscriber numbers for Q1, but then again, it would appear that we have graduated from that type of thinking. As long as the important metrics such as cash flow, ARPU and SAC are in line or better than expected, the company should be able to deliver shareholder value.
The turn around of the economy will take time, and investors may not see immediate satisfaction, but it appears that Sirius XM has the potential to be in a good position to respond to better times ahead.
Position: Long Sirius XM