Sirius XM Attracts New Subscribers with Free Trials

+26.91%
Upside
3.88
Market
4.92
Trefis
SIRI: Sirius XM logo
SIRI
Sirius XM
Sirius XM Average Revenue Per Subscriber

Source: Trefis Estimates

Sirius XM (NASDAQ:SIRI) is offering a two week free trial for customers after which it will offer a discount of 60% for 5 month period if the users decide to continue the subscription. [1] This is definitely an attractive offer to promote subscriptions and we will look at the potential impact   Below we take a quick look. Sirius XM has ties with major automobile makers such as Ford (NYSE:F), GM (NYSE:GM) and Toyota (NYSE:TM), which help drive its presence in the U.S. automobile space. The current offer seems to be focused on automobile as well as non-automobile subscribers and therefore warrants a financial check.

Our price estimate for Sirius XM stands at $2.07 – about 5% below the market price.

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Potential Upside Worth the Price

We estimate that Sirius XM will gain about 1.6 million subscribers in 2011. This amounts to 133,000 subscribers gained each month on average.

If we assume that due to the offer, the subscriber gain rate becomes twice the normal, we conclude that in two week period the company can gain close to 133,000 subscribers. Assuming that all of these subscribers continue, the money lost due to promotional offer for these subscribers will be close to $6 million.This is because after the free two week period trial the subscribers will have to pay just $25 for five months amounting to 60% savings on regular price. [1]

Lets compare this to the current valuation for the company. We estimate Sirius XM’s price to be about $2 amounting to $8.2 billion in total value. The financial loss due to additional offer is less than 1% of the total estimated value and thus not very significant. Moreover, the extra subscribers gained from this move will contribute in long term and therefore, more than offset any short term negative impact on revenue per subscriber that one may see in upcoming quarter.

See our complete analysis for SiriusXM

Notes:
  1. Sirius XM (NASDAQ:SIRI) Offering Free Satellite and Internet Radio Service Starting Today, Satellite Radio Playground, Aug 30 2011 [] []