Sirius XM Radio Inc
is the largest satellite radio company in United States, mainly
distributed through automakers and retail locations as well as
through Sirius's own website. Sirius XM has ties with major
automobile manufacturers such as Ford (
) and Toyota. This helps drive its presence in the U.S. automobile
space. Sirius competes with traditional AM/FM radio as well as
Internet radio offerings from Pandora and Rhapsody.
Sirius XM's average revenue per subscriber, inclusive of
subscription and advertising revenue, declined in 2008 due to a
change in the mix of discounted OEM promotional subscriptions as
well as the impact of the Sirius and XM merger which increased the
number of subscribers by over 100% but only increasing revenues by
81%. In 2009, the average revenue per user (ARPU) increased back to
$122 as the company increased rates on multi-subscription packages
as well as the introduction of Internet subscription package.
Going forward, we expect the ARPU to increase steadily led by
lower churn rate and increase in the royalty fee. While we expect
Sirius's ARPU will increase to $160 by the end of Trefis forecast
period, Trefis members predict the ARPU will reach close to $180,
implying an upside of 13% to our price estimate for SIRI stock.
We currently have a
Trefis price estimate of $2.00 for Sirius XM Radio's
, about 16% above the current market price of $1.73.
Subscriber Churn Rate Expected to Lower
Sirius XM had a churn rate of 1.7% in 2007 and 1.8% in 2008.
However, due to difficult market conditions, churn rate increased
to 2% in 2009. The churn rate for 2010 declined to 1.9%, driven by
an improving economy, the success of retention and win-back
programs as well as reductions in non-pay cancellation rates. As
market conditions improve, we expect churn rates to go back to the
1.7% levels. This will help Sirius XM retain its customers and also
help it to market new packages to them.
Royalty Fee to Increase in 2011 and 2012
Under the terms of the Copyright Royalty Board's decision,
Sirius XM paid royalties of 6.5% and 7.0% of gross revenues,
subject to certain exclusions, for 2009 and 2010, respectively. For
2011 and 2012, Sirius XM will have to pay royalties of 7.5%
and 8.0%. Increasing royalty fee will likely result in Sirius XM
passing on these costs to the customers, thereby increasing
Trefis Community Forecast
Trefis members forecast Sirius XM's average revenue per
subscriber will increase from around $132 in 2011 to $180 by the
end of the Trefis forecast period, compared to the baseline Trefis
estimate of an increase from $126 to around $159 during the same
period. The member estimates imply an upside of 13% to the Trefis
price estimate for Sirius XM Radio's stock.
complete analysis for Sirius XM Radio's stock is