Coverage Launch: Sirius XM Radio $1.97

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Sirius XM Radio Inc is the largest satellite radio company in United States. Sirius and XM merged in July 2008 to form Sirius XM Radio Inc. The company offers over 180 channels comprising of commercial free music, sports, talk shows, news stations amongst others. Sirius XM radio channels are mainly available in automobiles but can also be accessed over the Internet or through home stereos by using various accessories. The firm's satellite radios are primarily distributed through automakers, retail locations and through its website. Sirius XM has ties with major automobile manufacturers such as Ford ( F ), GM ( GM ) and Toyota. This helps drive its presence in the U.S. automobile space. In addition satellite radio services are also offered to customers of certain rental car companies.

Sirius at a Glance

The firm's primary source of revenue is the subscription fees it charges customers for annual, semi-annual, quarterly or monthly subscriptions. In addition the company derives revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios and accessories as well as other ancillary services such as weather, traffic, data and "Backseat TV" channels.

We recently launched our coverage of Sirius with stock price estimate of $1.97 .

For our analysis, we segmented Sirius XM's business into three divisions:

1) Satellite Radio Subscription

2) Advertising

3) Equipment and Other Revenues

Sirius' Niche … Satellite Radio

The satellite radio industry is slowly growing in the U.S. amid competition from the digital audio industry (iPod, Pandora etc). Sirius's satellite radio not only offers a commercial free music experience to listeners, but it also provides updates on local weather and traffic.

Sirius relies heavily on the automobile market to promote its services. Therefore the past two years have been difficult for Sirius as auto sales declined. However as the automobile industry recovers from the recession, Sirius is expected to do well. Sirius currently has a 60% penetration rate in the new automobile market and of those who purchase automobiles about 46% continue to use Sirius radio services after the trial period expires. In the future we expect Sirius to further expand its reach and also target the used-car market.

2011 Developments

2011 is an important year for Sirius as its three-year freeze on subscription pricing imposed by Federal Communications Commission will expire. Thus Sirius could potentially change its subscription fees. Also the Copyright Royalty Board is expected to provide new guidelines for the royalties that Sirius has to pay to content providers. Currently, Sirius will have to pay 7.5% and 8.0% royalties in 2011 and 2012. If the Copyright Royalty Board changes the rates, Sirius might have to change its subscription pricing as well.

See our full rationale and estimates for Sirius.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: F , GM , SIRI

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