By almost all accounts, Sirius XM (SIRI) is the classic American success story.
The company effectively created an industry — satellite radio — from scratch. And being the organization to develop it, SIRI has been the one to dominate that industry: The company boasts roughly 26 million subscribers now, up from only 1.6 million subscribers at the end of 2003. Even more impressive is how that subscriber base drove $3.7 billion worth of revenue for Sirius over the past four quarters. Not bad.
As is the case for any technology-dependent company, however, the sheer passage of time is a threat to Sirius XM. In fact, 2014 may well be the technological tipping point that makes the stock more of a liability than an asset.
To reiterate, you have to give Sirius XM a lot of credit. It created something out of nothing, and has turned a tidy profit for a few years by doing so. There are two realities, however, that should start to worry SIRI stock owners:
- Much of Sirius XM’s success is driven by auto owners who want commercial-free programming in their car, and automakers have been willing to build satellite radio receivers into the dashboards of new vehicles.
- The advent of mobile broadband (and smaller computer chips) has opened up the door to smartphones and tablets being plugged into automobile dashboards, which can offer not just audio entertainment, but a variety of tools and utilities that were never possible in a vehicle before.
As to the first point, 69% of new cars sold in the United States are equipped with Sirius satellite radio receivers, and 44% of the new-car buyers that utilize the free six-month trial end up becoming paying subscribers. With an estimated 50 million receiver-equipped vehicles on the road now and an estimated 100 million such-equipped cars likely to be on the road by 2018, it would be easy to assume Sirius XM is sitting pretty.
It’s the second reality that has starting to cause problems, however, and it’s a bigger problem than most investors might appreciate. And no, being brought under the Liberty Media (LMCA) umbrella — as Liberty Media proposed on Friday — isn’t going to change either of these now-troubling realities for Sirius XM.
Apple and Google Push Sirius XM Aside
When Apple (AAPL) first unveiled the idea of connecting an iPhone to a car’s dashboard in 2012, it wasn’t viewed as a completely crazy idea. In-dash screens had already been introduced, GPS devices were already affixed to many consoles, and it was largely assumed the melding of personal consumer technology and vehicles was only a matter of time, and that time was soon. Nobody saw the melding of an automobile and an operating system as a looming game-changer though.
What a difference two years can make. Since then, Apple has been forging partnerships with BMW, Mercedes-Benz, General Motors (GM), and Honda Motor Co. (HMC). In some of this year’s models, for instance, Honda will be building in the technology that allows a driver to use the Apple’s iOS “Siri” assistant to retrieve e-mails, weather reports, and of course, driving directions.
Oh, and let’s not forget that one of the coolest things about an iPhone is that it can keep its owner perfectly connected with his or her cache iTunes songs and/or tuned into the newish iTunes Radio, which are now both available for listening via the vehicle’s dash. Suddenly that satellite radio receiver is starting to feel a tad redundant, and less powerful than the other device hooked up to your car.
And if there was still a smidgen of a chance that consumer-tech companies weren’t actually all that interested in dominating automobiles’ dashboards, Google (GOOG) just quelled it.