3 Most Important Drivers to Sirius XM Radio

March 29th, 2011 by Trefis Team
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Sirius and XM merged in July 2008 to form Sirius XM Radio (NASDAQ:SIRI). Since then the economic downturn took its toll since the company depends heavily on distribution through automobile sales from companies like Ford (NYSE:F), GM (NYSE:GM) and Toyota. Below we take a look at the the 3 biggest drivers to Sirius’ satellite radio subscriptions which makes up almost 84% of its stock value. Its competitors include Cumulus Media Inc. (NASDAQ:CMLS) and Westwood One Inc. (NASDAQ:WWON). We currently have a price estimate of $2.00 for Sirius XM Radio’s stock, which is about 20% above market price.

The most important division for Sirius XM Radio

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Sirius XM earns revenues from Satellite radio subscriptions, which makes up 84% of its stock value. These services include a variety of channels across various categories including music, sports, talk and entertainment as well as news and information. 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.

3 drivers for the satellite radio subscriptions division

1) Number of Sirius XM automotive subscribers

This represents the total number car-owners who have subscribed to Sirius XM radio services. The number of Sirius XM automotive subscribers increased steadily from 3.7 million in 2007 to 13.1 million in 2010. Favorable factors for the increase have been the Sirius and XM merger, an increase in U.S. light vehicle sales, and new vehicle penetration. Going forward we expect the number of Sirius XM automotive subscribers to continue increasing during the Trefis forecast period.

2) Number of Sirius XM retail subscribers

This refers to the number of Sirius XM radios sold through the retail channel. The number of retail subscribers increased from 2007 to 2008 due to the merger with XM. It has been declining since then and stood at 6.9 million in 2010. Going forward we expect it to continue declining during the Trefis forecast period.

3) Sirius XM’s Average Revenue Per Subscriber

This represents average yearly revenue per user and is derived from total earned subscriber revenue and net advertising revenue, divided by the daily weighted average number of subscribers for the period. It decreased from $103 in 2007 to $82 in 2008, before increasing to $122 in 2009 as the company increased rates on multi-subscription packages and offered new packages bundling the best of Sirius and XM. In 2010 average revenue decreased slightly to $119.  Going forward, we expect the average revenue per user to increase steadily during the Trefis forecast period.

See our full analysis and $2.00 price estimate for Sirius XM Radio