Sirius Antitrust Suit Could Lead to Sharp Downside

April 7th, 2011 by Trefis Team
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SIRI: Sirius XM logo
SIRI
Sirius XM

Sirius XM Radio (NASDAQ:SIRI) is facing a class action suit filed by a nationwide group of the company subscribers that alleges antitrust law infringement because the company has abused its monopoly position and increased its fees by 30%. Sirius is the largest satellite radio company in United States and is 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 (NYSE:F), GM (NYSE:GM) and Toyota (NYSE:TM), which help drive its presence in the U.S. automobile space. Under the regulatory threat, lower fees could exert negative pressure on Sirius XM’s average revenue per subscriber leading to downside from our forecasts.

Sirius competes with Cumulus Media Inc. (NASDAQ:CMLS) and Westwood One Inc. (NASDAQ:WWON), as well as traditional AM/FM radio and Internet radio offerings from Pandora and Rhapsody. We currently have a price estimate of $2.00 for Sirius XM Radio’s stock, which is about 10% above market price.

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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.
Antitrust infringement could restrict Sirius’s ability to raise fee

While we currently estimate a steady increase in Sirius’s average revenue per subscriber, we believe that the threat of antitrust law infringement can force Sirius to keep the average revenue per subscriber constant rather than gradually as we currently anticipate. This would imply 25% downside to our price estimate of $2.00 for Sirius XM Radio’s stock. This scenario would put our estimate for Sirius XM Radio stock at about $1.50 billion.

You can drag the trend line in the interactive chart above to test this scenario, and others, and see the potential impact on Sirius XM Radio’s stock.

See our complete analysis of Sirius XM Radio here