As a Sirius XM (NASDAQ:SIRI) investor the one thing I can always count on is that every quarter someone will publish their opinion that either the connected car or 'streaming' competitors such as Pandora (NYSE:P) or Apple's (NASDAQ:AAPL) Beats radio will 'destroy' Sirius XM. The author will have suddenly realized this, despite years and years of others publishing the very same opinion, and will go through a detailed explanation of why they feel Sirius XM is doomed. Often they will cite other's similar opinions, talk about how many cars are going to have "Wi-Fi built right in!" and suggest that this will destroy Sirius XM because, well, why would one subscribe to Sirius XM when they can download a bunch of different apps and get all of that content for free?
Enough is enough. I have to ask myself, do any of these authors know what they are talking about? Have they really thought about what they are writing and given consideration to why, exactly, people choose to subscribe to Sirius XM and why, exactly, Sirius XM has thrived even as the connected car has become more and more prevalent?
Let's think for a minute. Since he inception of the smart phone and the fleshing out of 3G and now 4GLTE data, most everyone with one of these phones has the capability of simply hooking into their dash through bluetooth, loading up streaming radio or their mp3 library, and playing music. Similarly these users can download various apps which let them listen to some things like sports games without subscribing to Sirius XM. For the better part of a decade this has already been available as a choice, yet for the better part of a decade individuals have chosen at fairly steady rates to subscribe to Sirius XM either instead or in conjunction with these services.
In fact, the rate of customer acquisition has actually increased recently, and this is in the face of cars increasingly offering what is touted as wi-fi connectivity, better known as the connected car. A simple glance at year over year numbers in Sirius XM's most recent 10-Q will show this. Last year the company added 380,000 new self pay subscribers in Q2. This year? 519,000.
What, exactly, is the connected car waiting for? More and more vehicles are being sold with this wi-fi connectivity. More and more owners have smart phones that can be linked with bluetooth or turned into a mobile hotspot with a click of a button. The data just does not support the notion that the connected car is about to destroy Sirius XM.
The fact of the matter is that Sirius XM has not seen negative impact from increased availability of mobile data, streaming, the connected car, or whatever one would like to call it. New car conversion rates have only dipped slightly over the last several years due to increased penetration into lower end vehicles which do not convert as well, and self pay monthly churn has been decreasing on an average basis. If the connected car was a threat, it would show up in some way. Someone would be able to pick up on it from a numbers basis and say hey, look, the numbers show...
But they can't. It's all 'I think' and 'I believe' and 'might' and 'maybe.'
Sirius XM thrives because it is simple to use, 100% connected all the time, everywhere, and offers a huge amount of content at very low monthly price without the need to flip around between a bunch of different apps or pay for additional data packages. This will continue to be the case.
Since we are offering opinions, I'll throw mine out there.
The connected car my be becoming more and more prevalent, and may in fact be standard instead of an option in the years to come. This means a software driven dash stack with internet connectivity and applications built right in will likely be the norm on new vehicles as time goes on. Sirius XM will be in that dash as well, both as software and hardware with internet and satellite capability providing an always on experience.
The company has loosely hinted at their next generation platform which they call SXM17 :
It's what Sirius XM Radio is calling its new platform that it is working on with several carmakers. "We are working with them very closely on implementing our next generation audio entertainment platform in the vehicles," CEO Jim Meyer told analysts on a conference call. "Every one of them has shown a very high interest in getting this implemented."
The new technology will use drivers' mobile phones to give SiriusXM more two-way connection that will enable users to have more control over what they're listening to, bringing the thumbs-up or down functionality of streaming to satellite radio.
This should be complimentary to the connected car, not isolate the company from it.
I have long said that Sirius XM will adapt and move when it needs to into the streaming space. The time for this was not 3 or 4 years ago, but the time is coming and it appears the company is positioning itself properly to exist in competitive fashion side by side in the dashboard with free, commercial based options such as Pandora, just like it already competes successfully with free, commercial based options such as traditional AM/FM radio. Yes, more details are needed about the new platform but I believe the company has proven that, to date, it has understood what the driver is looking for quite well.
It's all well and good to have an opinion and voice that opinion, but I would suggest that those who believe the connected car will 'destroy' Sirius XM take a look at the actual data to date. Understand the space and what the connected car actually brings, understand how Sirius XM will be positioned going forward, and then decide whether or not the company will be competitive or whether or not it will be 'destroyed.'
Disclosure: I am/we are long SIRI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long SIRI January 2016 and 2017 calls at $2.50, $3 and $3.50 strikes. I may trade shares of Sirius XM from time to time against these option positions.
