Sirius XM Holdings Inc. (NASDAQ:SIRI) — while split as Sirius and XM Radio, and while joined in its current form — has dominated satellite radio from the very start.
However, in Sirius’ case, even dominating an industry isn’t necessarily enough to make the company a good buy. The choices people have in how they listen to radio are evolving, and SIRI is heavily dependent on another area of the market for its exposure.
For those and other reasons, SIRI stock may have a rough road ahead of it.
Who’s Subscribing to SiriusXM?
Sirius XM itself refers to its “dependence upon the industry” as a factor that can materially impact the company’s results. You’ll find that in the “About” section of most Sirius XM releases.
And, well, that’s a pretty big risk.
Sirius XM needs the auto industry to be healthy to remain relevant, and a big sticking point there is that young people simply aren’t buying cars — or even viewing cars — the same way their parents did.
For one, unemployment is simply higher among millennials, resulting in an inability to purchase cars in the first place. But even for those who might have the means, studies show that millennials don’t value having a personal vehicle as much as older generations, and generally, millennials are more interested in experiences than in owning stuff.
According to SiriusXM CEO Jim Meyer, the average SIRI customer is 46 years old and making $100,000 a year. He also points out that those demographics reflect the types of people buying new cars these days.
Does that sound like a millennial?
The Changing Automotive Landscape
Currently, SIRI corners the market with regard to satellite radio in newer vehicles, but tech companies have discovered the potential of this market and want a piece of it. Forget Pandora Media Inc (NYSE:P) and Spotify — the big boys have stakes in the game.
Both Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) have car radio platforms on the market. Although Apple’s CarPlay and Google’s Android Auto are not as prolific as Sirius XM’s satellite radio, the mere fact that those players are on the field should grab the attention of SIRI stock holders.
Moreover, ride-sharing and car-sharing platforms such as Uber and Lyft are gaining in popularity, with these taxi-like services especially appealing to the younger crowd.
And if you need an actual vehicle for the day, why not reserve a Zipcar or grab a Car2Go vehicle?
The Howard Stern Effect
Howard Stern moved to Sirius in 2005 and was a catalyst in bringing the then-fledgling satellite radio platform to a broader audience. When he left broadcast radio, he brought a swath of loyal fans with him.
But what once was a boon is now a pending problem. Stern’s contract is up in December 2015, and whether he’ll stick around is up in the air. People have said they wouldn’t abandon SiriusXM just because Stern left … but the loss of its biggest star is almost certain to have major repercussions for the company that has two stations dedicated to Howard Stern.
Bottom Line
Sirius XM has a pretty firm grip on the satellite radio market through newer car sales, but the winds of change are blowing. Fewer young people are buying new cars, and many are choosing to either use carsharing or ridesharing services. All the while, major tech players like Apple and Google have their sights set on this small part of the world.
These factors reveal that Sirius XM has a fight on its hands if it wants to remain top dog in what eventually could be a shrinking car radio marketplace.
SIRI stock isn’t going to zero overnight by any means. But it does mean that new money is likely better off in a different part of the market.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
