It’s a complicated set of factors that must be taken into account when determining the future profitability of the satellite radio provider Sirius XM (NASDAQ:SIRI), but analysts most often boil down their assessments to two key metrics: car sales and competition.
Sirius XM is one of the clear beneficiaries of a strong market for new automobiles; as research from iStockAnalyst pointed out a recent article, Sirius XM comes equipped in approximately two out of every three new vehicles. As February car sales amounted to a “very strong 15.5 million” at a seasonally adjusted annual rate, according to Edmunds.com, the satellite radio provider is expected to experience gains in terms of subscribers, quarterly earnings, and stock price.
But the calculations are slightly more complicated than these numbers indicate. While two-thirds of all new cars do come installed with Sirius’s equipment, not all new car buyers choose to purchase the service once their free trials expire. Still, even with this condition, the figures are not bad. Analysts have estimated that about 45 percent of the promotional trials are converted into subscriptions. According to iStockAnalyst, the company’s Chief Finance Officer David Frear hinted at a recent Piper Jaffray Technology Media and Telecommunications Conference that the “take,” or the conversion, rate could be heading higher.
One cursory method of testing whether this prediction is based in fact is Google Trends. This is not a scientific study, and there are obvious problems that come from drawing insight from volume and trends. However, it does provide some measure of changing customer interest. Despite the strength of car sales, the numbers of queries using the keyword “Sirius” have dropped on a quarter-over-quarter and year-over-year basis. Since the beginning of the year, search volume interest has declined 14 percent.
As Sirius ended the last quarter with 534,596 net subscribers, a 14 percent decrease in interest could equate to a drop to 460,044 in the company’s first quarter’s numbers.
But Google Trends also showed that searches for “Sirius Cancel” are down, year over year, by 16.67 percent, and are flat, quarter over quarter, meaning that the company’s “take rate” should be higher than it was in the first quarter last year…
Together, these numbers indicate, according to iStock, that Sirius could end the first quarter of 2013 with 430,000 net subscribers and post revenues of $906,852,270, slightly below current estimates for $909 million.
The other problem facing Sirius is competition, and more specifically, the connected car. With automakers like GM (NYSE:GM) and Ford (NYSE:F) giving their vehicles wireless capabilities, Sirius is no longer the only other alternative to traditional radio. Skeptics have been calling Sirius XM Radio a transitory technology for quite some years, and they could construe this change as proof. Drivers with seamless access to the Internet can choose from Pandora (NYSE:P) — which has 67 million unique monthly users that consume nearly 1.4 billion hours of content per month — Spotify, or even the rumored offerings from Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG).
But Sirius will not be left completely behind; the satellite-radio provider does offer an online streaming plan, which costs just $3.50 a month for subscribers. And, as a recent Motley Fool article noted, “Frear isn’t naive. He knows that connected cars will explode in popularity in the coming years. Sirius XM Radio’s moves to fortify its streaming offering … anticipate a future where more audio is consumed through wireless devices.” The company added on demand selections last year and has created a Pandora-esque personalized radio platform in order to combat the new source of competition.
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