Better Buy: Sirius XM vs. Netflix

Sirius XM (NASDAQ: SIRI) and Netflix (NASDAQ: NFLX) offer popular subscription services, but their fortunes could go in vastly different directions in the coming years. One of them faces significant risks while the other has a huge opportunity ahead, which makes one of them the better buy.

Sirius XM's fourth-quarter earnings report in early February showed its core satellite radio business reached 30 million self-pay subscribers, people who are paying for their own subscription, and another roughly 5 million paid promotional subscribers, who are receiving a free trial subscription paid for by a car company.

In total, the overall subscriber base grew 3% compared to a year earlier, which is fairly anemic growth and worrisome for a subscription business. In any given period, subscription businesses have a certain number of new subscribers and a certain number of cancellations, and the turnover is known as "churn." It wouldn't take much of a slowdown in new subscribers or an uptick in churn to topple that 3% growth rate into negative territory, and if that happens, it would be easy to imagine investors losing confidence in the company's long-term prospects.

Source Fool.com