Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Sirius XM Survive?

I ask can Sirius XM survive because is the satellite radio service is a small company with a giant competitor: Alphabet (NASDAQ: GOOG).

To explain, Alphabet (NASDAQ: GOOGL) is opening its Android Automotive operating system for vehicles to third-party apps. Specifically, entertainment apps; including Sirius XM (NASDAQ: SIRI) and Spotify (NYSE: SPOT), could be available through Android Automotive via Google Play.

Android Automotive threatens Sirius because it gives an infinite number of competitors access to vehicles. To clarify, Sirius’s business model is to offer an exclusive source of audio content to drivers through satellite radio. However, Android Automotive can offer unlimited amounts of free and low-cost audio through apps.

Moreover, Android Automotive will be a standard feature in all Fiat-Chrysler (NYSE: FCAU) vehicles by 2022, The Detroit Free-Press reports. Hence, all Jeeps, Dodges, Chryslers, and Fiats will feature Google Play.

Can Sirius XM Compete with Alphabet and Spotify?

Consequently, Sirius XM; which owns Pandora, is offering an $8 a month streaming subscription, Market Watch reports. Additionally, Sirius will charge $1 for the first three months of service.

Thus, Sirius is trying to compete with Spotify at its own game. However, that will be difficult because Spotify offers access to 40 million tracks of music, Business of Apps estimates. In fact, Spotify’s “Today’s Top Hits” is world’s most popular DJ with nearly 20 million listeners.

Plus, Spotify is expanding its presence in podcasts by buying companies like Gimlet and Anchor, TechCrunch reports. This threatens Sirius, because exclusive audio content; like Howard Stern, is one of Sirius’s biggest attractions.

Why Rush Limbaugh will go to Spotify or Sirius?

Obviously one way, Spotify could wipe Sirius out is to offer podcasts of popular radio talkers like Rush Limbaugh, Glenn Beck, Sean Hannity, and Dave Ramsey. However, those superstars have exclusive deals with radio operators like iHeartRadio.

Consequently, one way Spotify, or Sirius; or Apple (NASDAQ: AAPL), could dominate audio in the USA is to spend the big bucks and lure Rush or Sean to its podcast. Ultimately, Limbaugh, Ramsey, and the rest will have to go digital to survive, because over the air radio audience will die off.

Furthermore, thousands of other would be competitors like Spotify will have access to Sirius’s customers through Alphabet Automotive. Consequently, Sirius will a hard time surviving.

Sirius Vs. Spotify

Sirius XM reports revenues of $1.744 billion and a gross profit of $888 million on 31 March 2019. In addition, Sirius records an operating income of $434 million and a net income of $102 million the same day.

In contrast, Spotify reports revenues of $6.044 billion and a gross profit of $1.555 billion for 2018. Meanwhile, Sirius records annual revenues of $5.771 billion and a yearly gross profit of $3.462 billion for 2018.

Additionally, Sirius records a yearly operating income of $1.726 billion and an annual net income of $1.375 billion for 2018. However, Spotify records an operating loss of -$49.43 million and net loss of -$89.66 for 2018.

Interestingly, Sirius generates a lot of cash; $1.88 billion in cash from operations and a free cash flow of $1.525 billion in 2018. Conversely, Spotify reports an annual free cash flow of $105.75 million and an operating cash flow of $395.40 million for 2018.

Additionally, Spotify had $653.77 million in cash and short-term investments on 31 December 2019. Plus Sirius reported no cash and equivalents of any sort on 31 March 2019, down from $54 million on December 31, 2019.

Therefore, Sirius XM’s makes more money it cannot keep from fewer subscribers. Notably, Stastia estimates, Sirius had just 34.04 million subscribers at the end of 2018. Conversely, Business of Apps estimates there are 217 monthly Soptify users.

Can Sirius Keep Making Money?

Spotify’s lack of income presents a huge problem for Sirius, because Sirius is moving to an all-digital business model. On the other hand, Spotify already practices that business model and generates no income.

In fact, Spotify has 96 million premium subscribers who pay €4.89 ($5.47) for a subscription, Music:)Ally estimates. Under these circumstances, Sirius will have a hard time selling subscriptions when Spotify gives its audio away for free, and charges less for its subscriptions.

Meanwhile vast amounts of free and low-cost audio will be available through Android Automotive. Moreover, that audio will be available on new cars as soon as they leave the dealership.

How Google can Destroy Sirius

Thus, Alphabet is adopting Sirius’s business model of installing its app in new cars. This is dangerous to Sirius because Alphabet does not need the subscription income from audio.

Instead, Google can give all the audio it wants away for free to attract new customers and sell advertising. Notably, Alphabet reported $36.339 billion in quarterly revenues on 5 May 2019.

In addition, Alphabet is making a push into automotive that includes an alliance with Lyft and aggressive expansion of its Waymo self-driving vehicle platform. In fact, I think Alphabet will use Android Automotive to gather data about drivers it can sell. Moreover, Alphabet will use loss leaders like free audio to get people to use Android Automotive.

In the final analysis, it will be hard for Sirius to keep making money with Alphabet as a direct and in-direct competitor. Thus investors need to keep away from Sirius.

Investors need to stay away from Sirius and Spotify

In fact, investors need to stay away from Sirius XM Holdings (NASDAQ: SIRI) despite the low stock price ($5.63 on 14 May 2019). Investors must avoid Spotify (NYSE: SPOT) because nothing in the financials justifies the $133.58 share price for 14 May 2019.

Nor is the 1.21₵ dividend Sirius will pay on May 31, 2019 justify the low price. No surprisingly, Spotify pays no dividend at the present time.

Judging by Sirius and Spotify, streaming audio does not pay right now. Thus, stock pickers need to avoid streaming audio.