Sirius XM, Yesterday and Today

From the Motley Fool

Five years may not seem like much when compared to the nearly 25 years that Bob Edwards served as a morning-show host on National Public Radio. But a lot has changed for Sirius XM Radio (Nasdaq: SIRI) since he arrived.

Edwards was a pioneer. He migrated from terrestrial radio before bigger media icons Howard Stern, Oprah Winfrey, and Martha Stewart inked their big satellite-radio deals. Now Sirius is celebrating the fifth anniversary of Bob Edwards' arrival on satellite radio this month. The distinguished radio newsman joined XM shortly after it hit the 2-million-member milestone. Sirius was considerably smaller at the time. In fact, Sirius and XM together accounted for just 3 million subscribers.

Times have certainly changed. Even though this has been a rough year for subscriber acquisition and retention rates, Sirius XM still manages to claim 18.4 million subscribers. It's hard to think of any other premium subscriber-based industry that has grown sixfold over the past five years. Comcast (Nasdaq: CMCSA) and DirecTV (Nasdaq: DTV) have broader audiences, but they definitely weren't as small as Sirius XM was in 2004.

Today's subscribers are also paying more for access, and that's important when you consider the scalability of the satellite-radio model and Sirius XM's need to beef up margins to command the market's respect.

After all, margins and profitability are crucial for any business. Five years ago, Netflix (Nasdaq: NFLX) had 2.2 million subscribers. Its user base has grown quickly, but it's a far cry from Sirius XM's audience. One of the reasons Netflix is a market darling while Sirius XM trades at a fraction of its 2004 price is that a lack of cash flow has forced Sirius XM into printing new shares to keep creditors away.

Now that Sirius XM has gotten its financial act in order, its hope is that the stock gains that failed to materialize during its subscriber-growth heyday can show up and help create a positive-cash-flow story. It would be ironic to see Sirius XM's stock rise as its user base flattens out or possibly even declines, but that's what the market needs to see before it buys into the satellite-radio model.

Enjoy the birthday cake, Edwards. Let's see how rich dessert tastes in five more years.