Apple (AAPL +0.10%) revealed that its iTunes Radio streaming platform attracted over 11 million unique listeners since its rollout last month. Articles have been written about the development, and many have focused on how it would affect the value proposition of Sirius XM Radio (SIRI +0.00%). With Sirius XM seen as a potential victim, it is a good time to look into the issue.
Sirius XM won't be run out of business
Apple's success has led some to question the strength of Sirius XM (SIRI +0.00%). However, there are solid reasons why investors should not worry about the impact of iTunes on Sirius XM. For starters, Apple's service will give its users access to its entire iTunes catalog of songs, but this will not hurt Sirius. Apart from regular songs, Sirius XM also provides programs such as news, talk shows, and sports broadcast for radio listeners. Apple doesn't offer anything similar yet.
Also, due to Sirius XM's dominance in this sector, it expects its number of subscribers to hit roughly 25.3 million by the end of the year. But Apple is looking to increase revenues through increased purchases of iTunes Match for Commercial-free radio and its iTunes Match interface. Additionally, it wants to expand internationally. Apple is planning to launch the product in the U.K., Canada, Australia, New Zealand, and Nordic countries by early 2014. But the expansion will not affect Sirius XM. Apple won't be providing content such as news, talk shows, games, and other unique programs that make Sirius XM stand out.
Subscribers
Sirius XM has grown its number of subscribers by 9% in the past year.. Unfortunately, the number of subscribers lags behind the number of iTunes converts. While Sirius expects total net subscriber additions of approximately 1.5 million going forward, Apple iTunes Radio has become part of an iOS7 rollout that has reached 200 million converts. We don't know how engaged iTunes converts are presently.
However, it may not matter. Sirius XM has launched an in-car streaming app with Ford and announced a deal with AT&T to include apps in Nissan vehicles. Sirius XM is confident that total vehicles in operation with factory-installed satellite will be on the way to 100 million by the end of 2017. If the Sirius XM app initiative gains traction, it will be primed to pull in more subscribers.
Many competitors are also focused on the use of apps to generate revenues. Pandora (P +0.00%) has revamped its iOS app and scrapped a usage cap for mobile users of its free ad-based services. Although Pandora may be responding to the challenge posed by iTunes, the company should also be working to improve its bottom line. While it will have a 2013 operating margin of -9.16%, Sirius XM will enjoy an operating margin of 26.67%.
Programming lineup
With Pandora planning to issue more shares to survive the harsh environment, Sirius XM is keeping a close eye on refreshing its programming lineup to service customers. It will launch a program for clients who visit its service base at participating dealers. And it plans to further expose original and non-subscribing vehicle owners to its entertainment offering. Sirius XM can immediately sit back and enjoy an improved operating margin when the plan succeeds in attracting more subscribers.
Bottom line
With its new programming lineup and deals with automobile manufacturers, Sirius XM will weather any challenge posed by iTunes. Its attractive share repurchase program will have investors wanting more. If it continues with its progress, the stock will be placed within my investment radar.
