Is Sirius XM Stock a Buy? Only If You Like Watching Paint Dry

On the surface, Sirius XM Radio (NASDAQ: SIRI ) reported some nice earnings
this week, beating estimates by a penny with revenues in line. Subscribers
increased 7% year-over-year to 21.4 million. The other good news is that churn
still is very low, at 1.9%. In other words, people who become Sirius subscribers
stay subscribed. The churn rate is similar to another great media service
DirecTV (NASDAQ: DTV ). Sirius even reaffirmed many important aspects in its
guidance, such as $400 million in free cash flow for 2011 and $700 million for
2012. But numbers alone dont always tell the whole story. The real story for
Sirius is it doesnt seem interested in innovating or moving forward. The problem
is that as great a service as Sirius is, and as sustainable as its business
model is, it isnt bothering to give subscribers a reason to stay, or to sign up.
Its almost as if Sirius doesnt want to try to compete with Pandora (NYSE: P ).
Sirius recently released its 2.0 product, called Lynx, and it got no media
attention whatsoever. More to the point, it offers no compelling reason to
become a subscriber. In todays entertainment space, you must innovate to stay
competitive. Think about all the new products and innovations constantly coming
out of Apple (NASDAQ: AAPL ). Speaking of which, Sirius mobile apps
functionality, and even its online offerings, are weak. We are no longer in the
age of the typewriter, yet Sirius behaves like we are. Sirius also has some
serious marketing problems. Take a walk around your city, or drive around it for
awhile. Next time you are in an airport, look around. Watch television. How
often do you see advertisements for Sirius? Not very often. How can a company
expect to become a powerhouse if it doesnt advertise? Sirius has a great
opportunity. Its demographics skew toward upscale audiences that have a lot of
disposable income. This is the demographic that ad sales folk just adore. Its
also the demographic that advertisers themselves view as the Holy Grail. The
problem is that, other than these folks buying expensive cars that include
Sirius capabilities, the company isnt really monetizing them. One of the great
advantages of Sirius for the consumer is the lack of advertising on its
programming. On the other hand, it is advertising that helps Pandora, because it
uses geographically targeted ads. Still, people who have Pandora are fanatical
about it. Sirius needs to learn that more advertising wont necessarily doom its
service. Theres also an uncomfortable truth about subscriber services, and weve
seen it occur with Netflix (NASDAQ: NFLX ) and, in the last quarter, DirecTV.
The latter had been adding subscribers at a robust rate for many years. All of a
sudden, last quarter, it stalled. Netflix, of course, has been battling
subscriber loss since its summer of debacles. The thing about subscriber
services is eventually growth slows, and possibly even reverses. If Sirius
doesnt do something like advertise and innovate it is setting itself up for
trouble. Sirius stock hasnt gone anywhere. Or rather, it has but within a tight
range that makes it ideal for trading. As a long-term investment, however, SIRI
just doesnt make much sense. As of this writing, Lawrence Meyers did not own a
position in any of the aforementioned stocks.