This past week, the shares of Sirius XM Radio (SIRI) dropped more than 11% from the post merger high of $3.63 reached in the last week of May to a low of $3.21 before closing at $3.29 on Thursday. There are all sorts of explanations for the drop, including the announcement of Apple Computer's (AAPL) venture into the crowded field of Internet radio:
Tune in to iTunes Radio on your iPhone, iPad, iPod touch, Mac, PC, or Apple TV. You'll have access to Featured Stations, stations inspired by the music you already listen to, and more than 200 genre-focused stations - including everything from Hard Rock to Doo Wop. Your stations evolve based on the music you play and download. So the more you use iTunes Radio and iTunes, the more iTunes Radio knows what you like to listen to - and the more personalized your experience becomes.
While iTunes Radio would seem to be much more of a threat to Pandora (P), it will also provide a free alternative to Sirius XM plans for expansion into the Internet arena, including MySXM. Various reports have suggested that the reason it took so long for Apple to launch iTunes Radio was so that it could cut a sufficient number of deals directly with the record labels, avoiding the costly royalty fees otherwise imposed by the CRB.
While Sirius XM offers commercial free music, advertising based alternatives, will be attractive to many potential Sirius XM subscribers. And, before everyone starts screaming about the exclusive content of Sirius XM, it should be remembered that the content is only exclusive for the duration of the contract. If Apple were to view sports programming as an opportunity, would Sirius XM be able to compete - or even want to?
And if iTunes Radio wasn't enough to bring some pressure to the price of Sirius XM stock, maybe the fear of Apple encroaching into Sirius XM's strength in the dashboard where Apple will have iOS voice integration by 2014 in cars, including Accura, Honda, Hyundai, Mercedes, Nissan, Ferrari, Chevrolet, Infiniti, Kia, Volvo and Jaguar?
At Apple's WWDC in San Francisco, the company reveals new iOS integration with cars from.... The new software could make it safer to use an iPhone's functions in the car, as they could be controlled and viewed on the car's dashboard.
Or, as Apple puts it, iOS 7 will introduce "enhanced in-car integration, bringing an Apple designed experience into the car for the first time." The user could be getting maps, or notifications that they are low on gas with directions to the nearest gas station, the price of the gas and then gives directions to resume your trip, or suggestions about nearby restaurants, or... and all through voice activation.
Devotees of the Sirius XM service will not be fleeing in droves to suddenly adopt the Apple offerings. They have decided to pay for radio because they hate commercials or are fans of the exclusive content, including Howard Stern or Opie & Anthony, or they want to listen to their favorite professional sports team. These subscribers will, for the most part, continue to pay. However, if MySXM and Internet radio and the connected car are to be cornerstones of the future growth of Sirius XM, then the competitive landscape just became more crowded.
For now, the stock price pressure could be considered to be part of the overall market weakness and the headline risk of the recent Apple announcements. But investors should also remember that the share price of Sirius XM includes an expectation of significant growth, and that rate of growth probably just became a bit more difficult to maintain.
Additional disclosure: In addition to my long positions, I have January 2014 $3.50 covered calls written against most of my long positions in Sirius XM and June $3.50 covered calls on a short term trade. I also trade blocks of Apple and Sirius XM on a regular basis. I have no positions in any of the other companies mentioned in this article.