Turning on the radio
Sirius XM Radio Inc (NASDAQ:SIRI) is a satellite radio service provider operating in the U.S. and Canada. The company holds over 24 million subscribers, which makes it the world’s largest subscription radio service. Despite its subscription costs being pricier than its competitors’, the firm’s subscriber base has increased over 9% year-over-year and holds low churn rates, showing there’s a large number of consumers willing to pay for high-quality radio.
Sirius XM Radio Inc (NASDAQ:SIRI) trades at $3.70 or 7.4 times its sales — a 40% premium to the industry average — after soaring over 80% during the last 12 months. Despite its low price, it doesn’t seem cheap. Is this stock a buy? Maybe for the short term.
The company has significant growth potential in the domestic market. According to its management, its current share is only 13% of the domestic addressable audience. As the dominant player in the market, the firm has substantial scale advantages and can create — and hold exclusive rights for — highly in-demand content. In addition, the satellite radio market’s high start-up costs create an important barrier for potential Sirius XM Radio Inc (NASDAQ:SIRI) competitors.
Yet, in the long term, the ongoing expansion of wireless infrastructure should drastically change this picture, as it will reduce the industry’s barriers to entry, therefore increasing competition. Wireless growth will likely alter the radio industry landscape, and Sirius XM Radio Inc (NASDAQ:SIRI)’ outlook in relation to this change remains uncertain.
Loud and clear
Dolby Laboratories, Inc. (NYSE:DLB) is a well-known developer of advanced audio processing systems for the consumer market, and the film, broadcasting and music recording industries. The firm holds a rock-solid balance sheet, with no debt and almost $800 million in cash, and has a strong track record of having successfully transitioned through the media industry technological changes for decades.
Dolby Laboratories, Inc. (NYSE:DLB)’s ambivalent third quarter results announced last week put its shares under pressure, pushing its price down 4.2%. Trading at $33, or 15.9 times its earnings, does Dolby Laboratories, Inc. (NYSE:DLB) offer an attractive entry point, or should you skip this stock altogether? My bet is on the first option.
Dolby Laboratories, Inc. (NYSE:DLB) holds a vast portfolio of intellectual property and proprietary technology from which a large percentage of its revenue is derived: 86% of the company’s 2012 revenues came from licensing fees and royalties. The recent changes within Dolby’s licensing revenue — strong decline in optical disc licensing; symmetrical growth in non-optical licensing — portray a decent picture of the shift towards digital technologies that the media industry is experiencing.
Dolby Laboratories, Inc. (NYSE:DLB) is an excellent position to benefit from this shift, as the streaming industry is one of fastest developing segments in the tech sector with the necessity to compress media content continuing to grow. Streaming high quality content demands either heavy and expensive bandwidth usage or high compression, which is significantly cheaper. As a company that knows a thing or two about quality audio/video encoding, decoding and compression, Dolby has a great growth potential ahead.
