I'm pretty clear with people when asked about my long-term views on most stocks. I will often reply with : "My long-term horizon is six to 12 months at the most."
This is the honest truth. I rarely, if ever, purchase a stock with the intent of buying and holding it for years. You will never hear me chant "Long and Strong!"
This does not mean that I do not consider the long-term prospects of the companies I invest in. My mind will often wander to some of the more obscure topics or ideas, and this is the case with my largest investment, Sirius XM (SIRI). I hear much talk about possible saturation of paying subscribers, conversion rates, cancellations, churn, subscriber acquisition cost, and on and on and on.
I don't really worry myself with these things.
Before you close this out and move on, I urge you to take five more minutes and read through. For those of you holding Sirius XM (SIRI) with a long-term view, I think the following idea has more than a significant level of merit.
Free Sirius XM
Before I explain my own thought process on this, please entertain a read through of Crunching Number's article from December 27, 2011. This is an excellent read that many people likely missed due to the holidays. Crunching also revisits the idea briefly in his article here.
Within this article Crunching states the following :
One intriguing idea shared by Karmazin at the Liberty meeting was the possibility of offering a free service where the stations would carry ads and the number of stations offered would be limited. This type of program has the potential to generate additional advertising revenue and has the potential to make Sirius more valuable as a distribution channel to certain content providers. It also has the risk that it could cost Sirius some of its current self-pay subscribers.
If there is anything regarding the long-term future of Sirius XM that I consider, it is this idea. More from Crunching's article :
According to Karmazin, within three years "the enabled universe of cars with a satellite radio in them will exceed 70 million." If Sirius is able to grow subscribers by 8% per year, that still leaves more than 45 million vehicles with installed radios that are generating no revenue for Sirius.
Consider the gravity of this. Sirius XM is profitable currently. It does not need to do anything today to make money. It also grows more and more profitable on a daily basis. With 17 million current paying subscribers it has enough cash flow to increase cash on hand while also paying off / refinancing debt, which again, increases the bottom line.
The problem it faces is that churn will eventually slow new subscribers, and this will put a strangle hold on the total paying subscriber number. This is a serious problem indeed. In order to remain attractive as an investment, a company must either show growth prospects, or provide sufficient stability as well as a dividend. Sirius is volatile and pays no dividend at the current time. Thus, appreciation in share price is largely due to growth prospects.
When I think out to three years, this is what I think about. "45 million vehicles with installed radios" that are inactive.
Consider, if you will, the advertising prospects if Sirius XM were able to turn on 10 to 20 "free" advertisment supported stations. 45 million potential listeners at the flip of a switch. Listeners like myself would still happily pay to have no commercials, as even five minutes of commercials a day wastes enough time to make the monthly fee seem "cheap." Some may cancel, and that would have to be weighed in the decision of whether or not to flip that "free" switch. For each that cancels, though, chalk one up for the advertisement model
That's all it is. Flipping a switch. One switch flipped, button pressed, or lever thrown, and 45 million inactive radios come alive and available with prime ad supported music and / or talk. The prospects for advertising would be great. The blow to traditional radio and internet radio could very well be crippling, as it would steal advertisement dollars directly from already weak incomes. Something like this may also convince auto makers to simply include satellite radio in every single new car as a standard feature. Think about it.
Sirius XM is in a great position moving forward with this kept in consideration. If I had a three-year horizon, this simple idea would be kept in the back of my head, nagging me to hold on just a bit longer. Of course one must still pay attention to any significant changes with traditional radio or mobile internet radio such as Pandora (P). Always keep an eye on your competition.
The radios are already in the cars. They are paid for, expensed out, and just sitting there. As that pool of radios grows, their potential for monetization in the way illustrated above grows as well. I think this is a very strong possibility for the future.
What a perfect system, yes? Subscribers build the delivery structure, the support network, and pay for installing the radios. Eventually the company is able to monetize what subscribers paid to build out but no longer use. Brilliant.
"Free" Sirius XM is a sleeping giant that grows stronger on a daily basis, and will be a force to be reckoned with in the future. Bank on it.
Disclosure: I am long SIRI April and June $2 calls.
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