Sirius XM ( SIRI ) plans to introduce the next version of its service 2.0, a move we wrote about earlier this week . We believe this will increase in its subscription prices and lead to an increase in its average revenue per user. Below we estimate that this could roughly add about 10% upside to our existing price estimate assuming that the price hike doesn't impact subscription levels. Sirius XM has ties with major automobile makers such as Ford ( F ), GM ( GM ) and Toyota ( TM ), which help drive its presence in the U.S. automobile space.
Our price estimate for Sirius XM currently stands at $2, implying a premium of roughly 25% to market price before accounting for the price hikes.
The company will increase its base subscription price from $12.95 to $14.49 per month per subscriber. We estimate that average revenue per subscriber for Sirius XM is around $120 per year, implying $10 per month per subscriber overall. This gives us insight that the base subscription is likely to be most popular choice and average revenue per user is lower due to presence of free subscribers.
Given the above, we can conclude that a rise in base subscription price is going to have impact on most subscribers and thus on overall ARPU (average revenue per user). If we assume that there are about 15 million subscribers for the base plan, we conclude that the price hike will increase the average revenue per user past $130 for 2012 compared to our current $122 forecast. Consequently the upside potential to our current price estimate is of the order of 10% assuming that the price hike does not impact the subscriber growth.
We will update our model shortly to reflect this development as we receive more information on Sirius 2.0.
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