Could Apple and Google Deliver Sirius XM Holdings’ Knockout Punch?

Sirius XM has faced very little competition in its niche auto market, but thanks to Google and Apple, that could change quickly.

Jun 30, 2014 at 2:00PM


Source: Sirius XM

Sirius XM Holdings (NASDAQ:SIRI) has thrived for more than a decade, both pre and post-merger, due to very limited competition in the satellite radio space. Yet, Apple's (NASDAQ:AAPL) relatively new CarPlay service poses a major threat. This, combined with Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) announcement of Android Auto, could cause serious headwinds for Sirius XM, but will it be a knockout punch?

Success with ease
With over 25 million subscribers and over 165 channels, Sirius has become the most comprehensive collection of content in North America for vehicles. Over the years, Sirius has crossed the line of radio to media, as roughly half of its stations are designated to talk, news, sports, traffic, etc.

Sirius has grown to a near-$4 billion a year company by default, as its systems come installed in a majority of top auto manufacturers' models. Moreover, its operating margin of 26.8% has also been achieved with ease, as the company lacks significant competition in its automobile space due to its enormous platform of new automobile buyers, which creates pricing power.

New challenges arise
However, the market is quickly changing for Sirius, as it now faces competition from two of the most innovative and transcendent technology companies of all time: Apple and Google. Apple's CarPlay features its iOS operating system in vehicles, including phone, maps, messages, and of course, music. Its CarPlay experience will launch this year, and is already included in some Ferrari, Mercedes-Benz, Volvo, Honda, and Hyundai models. However, it will soon be installed in BMW, GM, and other top manufacturers as well .

Hence, Apple serves as the first significant competition that Sirius has faced in the automobile industry. Its iTunes Radio, a key element of CarPlay, launched last year and already has 40 million listeners. Therefore, it is growing fast, and unlike Sirius, consumers don't have to subscribe to CarPlay (as long as they have a compatible Apple device or an iTunes account).

Sirius longs will argue that CarPlay won't steal much of its market share due to its presence as a media company. Therefore, it should be noted that application developers can also create services compatible with CarPlay, like Stitcher, Spotify, and At Bat. If that weren't enough, iTunes Radio now has original content deals with the likes of ESPN and 42 radio stations from NPR. In other words, Apple is quickly killing the Sirius advantage.

What's Google doing?
As for Google, its Android Auto service was presented at its I/O conference last week. It works very similarly to CarPlay, utilizing top Google applications with a focus on communication, maps, and search. Google also announced options for developers, implying that Android Auto will have the capability to be personalized based on the consumer's need via Google's application store.

Google doesn't yet have a licensing deal with major record labels, but plans to utilize applications like Spotify, iHeartRadio, and Pandora to meet the listening needs of its users. Lastly, Google announced six automotive partners, including the likes of GM and Kia.

With all things considered, the future of this space comes down to logic: What service will auto manufacturers choose? Sirius is using technology that's over a decade old. Meanwhile, Apple and Google both command the smartphone and tablet space with deeply connected devices, so it's no surprise that Sirius will soon be fighting to have its services pre-installed in new vehicles, which might be a tough sell for the company.

Foolish thoughts
Albeit, neither Android Auto nor CarPlay are going to generate billions of dollars for Google or Apple, but they are important in making each company's operating system more connected, and in keeping consumers upgrading to new products that actually do create revenue and profits.

As for Sirius XM, it could very well lose its pricing power and success-by-default model, thereby forcing the company to lower subscription rates and offer better incentives to auto manufacturers to install its platform on what has become precious dashboard space. At 28.5 times next year's earnings, Sirius XM is not cheap, but rather expensive considering these unknowns, and share prices could have a long way to fall.

CarPlay and Android Auto are not the only technology breakthroughs you'll find in new cars
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Brian Nichols owns shares of Apple. The Motley Fool recommends Apple, BMW, General Motors, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information