Two Reasons Why Sirius XM Will Continue Growing

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Jul 30, 2015

The growing automobile industry in the U.S. has helped Sirius XM (SIRI, Financial) a lot this year as the stock is up over 13% YTD. The company’s managed to satisfy Q2 estimates on revenue and earnings on the back of strong auto sales. The company also recorded record EBITDA and raised the revenue guidance for 2015. I believe the company should continue to benefit from the booming automobile market, and it has also improved its business model to harness this growth.

Improving model

Despite the fact Pandora fends off rivalry from other streaming services, Sirius XM relishes a monopoly on satellite radio. It holds nine orbiting satellites –Â five for Sirius and four for XM. Satellites are extremely costly to launch into orbit, but it also does not cost a smaller amount to beam the signal to 1 million subscribers than to propel it to 10 million subscribers. Thus, Sirius XM's frugalities of scale are likely to be too great for any new competitor to overcome.

From all the competitors of the company, Terrestrial radio is Sirius' chief radio competitor. Terrestrial radio is analogous to Pandora in that it proposes free music paid for by ads. Sirius' ad-free subscription model, however, has had huge success. The company's product is sited in around 70% of new vehicles sold in the U.S., engaging Sirius satellite radio in millions of car dashboards every year.

On the other hand, Sirius fascinates an adhesive customer base that permits it to escalate prices deprived of fear of customer backlash. Exclusive content from CNBC, Rotten Tomatoes, the NFL and other providers has placed Sirius in a better position that peers. As a result of its wide variety of content, over 98% of Sirius' customers renew their subscriptions –Â even after price increases.

AutoCanada dealer group joins SiriusXM Canada's pre-owned vehicle program

SiriusXM Canada, the country's foremost audio entertainment company, detailed that AutoCanada has joined its pre-owned vehicle program. The program aids participating dealerships better market their inventory by proposing a free of charge three-month SiriusXM subscription with any buy of a pre-owned vehicle attached with a satellite radio.

AutoCanada is one of the Canada's largest multi-location automobile dealership groups, presently functioning 49 franchised dealerships in eight provinces with more than 3,400 employees. According to the previous fiscal year, the AutoCanada group of dealerships sold around 57,000 new and pre-owned vehicles.

AutoCanada is a robust partner for SiriusXM and through the pre-owned program; the company will be able to deliver their clients with an unmatched audio entertainment experience.

The program allows SiriusXM Canada to better aim Canada's large pre-owned vehicle market. The company guesses that by the end of fiscal 2015, there will be more than 7 million satellite radio equipped vehicles across Canada.

Conclusion

At the end of 2014, Sirius XM had a total of 27 million subscribers. In my opinion, this number will continue to grow and cross 60 million mark in a decade. Although competition is increasing, I think Sirius’ better position makes it superior to its peers. The company has a better business model and is constantly adding more content to its network. I expect Sirius XM to continue moving higher in the long-run.