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Sirius XM Won't Slide Forever

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It's been a rough run for Sirius XM Radio (NASDAQ: SIRI  ) shareholders. The stock has closed lower in five consecutive trading days through Tuesday's close, shedding 10% of its value along the way.

Things seemed to be going well for the satellite radio provider last week. Sirius XM hit a six-year high of $4.18 on Wednesday. But it's been all downhill since the media giant posted quarterly results on Thursday morning. Revenue came in a little light. Guidance was even worse. 

For the first time since late 2009, Sirius XM is expecting a net decline in subscribers during this holiday quarter. That's not as bad as it sounds. The more important self-pay subscriber metric will actually increase at a healthy clip during the period.  The retreat after 15 quarters of sequential growth may create some psychological resistance, especially if reality falls within the scope of Sirius XM's guidance to add just 1.6 million net additions in 2013 after securing 1.68 million through the first nine months of the year. It's merely a coincidence that this is happening during the first full quarter of Apple's iTunes Radio on the market, but some will tie a measuring stick that isn't as important as it seems to an event that in retrospect isn't as important as it sounds.

Yes, Apple's streaming music platform has attracted more than 20 million unique listeners since its launch six weeks ago. They're not just kicking the tires, as Apple also revealed that it served up more than a billion songs along the way. But Sirius XM has never had a problem growing even as Pandora (NYSE: P  )  has exploded in popularity. Pandora serves a much wider audience and they're tuning in for a lot longer than the average iTunes Radio user. 

Yes, they do reach different audiences. Pandora is largely consumed as a free ad-supported mobile app. Apple's iTunes Radio is also free and ad-supported, but it's only available on iOS mobile devices, and Apple customers tend to be premium buyers. But Sirius XM revealed earlier this year that early adopters buying connected cars are not canceling their satellite service at a higher rate than those on cars that don't offer smartphone owners Bluetooth connectivity to entertainment options. 

Sirius XM's guidance was disappointing last week, but this also happens to be a company that has historically erred on the side of being conservative. It will bounce back, and getting in 10% cheaper than you could have a week ago makes this a compelling entry point. 

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  • Report this Comment On October 30, 2013, at 12:35 PM, BillFromNY wrote:

    I have read that the net decline in subscriptions will be due to the new contract with GM. A Sirius' equipped auto will now only be counted as a subscription when it is bought or leased instead of when it is delivered to the dealership.

    So when GM autos already at the dealership are bought or leased, they won't count as a new subscription because they were already counted when they arrived at the dealership. New inventory cars arriving will also not be counted as new subscriptions, under the new contract, until they are bought or leased. Thus for the period between the effective date of the new contract, and the dealer disposing of existing inventory on that date, GM will be credited with little or no new subscribers.

    This is just what I have read. Can't verify it.

  • Report this Comment On October 30, 2013, at 7:25 PM, BillFromNY wrote:

    To clarify this summary statement above:

    Thus for the period between the effective date of the contract, and the date when the dealer sells or leases all the autos that were already in his inventory on the effective date of the contract, GM will be credited with only a few new subscriptions.

    Long term this accounting change will have no real significance.

    Why don't Motley Fool columnists respond to comments?

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