Google's Satellites Pose Threat To Sirius XM

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 |  Includes: GOOG, GOOGL, P, SIRI
by: Wall Street Playbook

Summary

I think we can now put rumors of Google buying Sirius to rest.

With Sirius stock still down 6% year-to-date, this is one more piece of news investors should keep an eye on.

If Google does pick off Pandora or Spotify, as is being rumored, how much longer will Sirius last?

Last week, with its it largest-ever acquisition at $3 billion, Apple (NASDAQ:AAPL) effectively became Sirius XM's (NASDAQ:SIRI) largest competitor by snagging Beats Electronics. In my article, I pointed out the potential effects Apple's new streaming toy would have on the entire industry - particularly as it relates to Sirius and Pandora (NYSE:P). But I warned that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) wouldn't remain idle for very long. It turns out I was wrong. Google didn't respond to Apple in the manner that I thought it would. Instead, the company went the orbital route.

According to The Wall Street Journal, the search giant will be launching as many as 180 satellites that will provide Internet access from outer space. This project, which will further Google's push into the connected car, self-driving car, and the Internet of Things, is not going to be cheap. The Wall Street Journal reports that just to start the project will cost Google in the neighborhood of $1 billion. And it will cost as much as $3 billion once the project gets underway. But for Google, money is no object.

Google has always had ambitions of worldwide internet connectivity to improve the lives of people around the globe that have no access at all. To that end, the company has taken on several initiatives such as Project Loon as well as Titan Aerospace. These are just a few routes the company has/can take to connect millions of under-privileged people around the world in the next couple of year. I don't think anyone will argue that these are noble causes. But the 180 satellites can have potential adverse effects to companies like Sirius XM, whose means of differentiation has always been its satellite capabilities.

Last week, I talked about Sirius' prospects in the connected car. With Google's satellites and Google's position and self-driving cars, can Sirius compete with Google's technological capabilities? Also important, can Sirius compete with Google's cash? Note, I have a $3.50 price target on Sirius shares. But I'm not opposed to changing that view at any moment. As information changes, it is prudent for one to change their mind. And Google launching satellites is a key development that can impair Sirius' market position.

On Sunday, Motley Fool contributor Rick Munarriz asked a question that I have been asking for quite some time; when will Google buy Pandora or Spotify? With Apple having just picked off Beats, Munarriz, like so many others, is waiting for the next domino to drop.

Let's assume Google did pick of Pandora or Spotify, how long will it be before Google, with its 180+ satellites, becomes a Sirius contender with the automobile. Google would have the content, the self-driving technology, the connectivity and now it will have the satellite to deliver everything a driver could possibly need during a commute. Let's not forget, Google would already control the dashboard with Android, and Google already has phone services; whether with OEM carriers or with its own Google Voice service.

And now, with the cell-delivered satellites, Google just eliminated one of the popular-cited arguments against any would-be Sirius IP competitor - the price. Sirius is not alone anymore; assuming it ever was. With Google now launching satellites, the market can start counting down for when Facebook (NASDAQ:FB) and possibly Microsoft (NASDAQ:MSFT) will enter the mix next.

I think we can now put rumors of Google buying Sirius to rest. With Sirius stock still down 6% year-to-date, this is one more piece of news investors should keep an eye on. And if Google does pick off Pandora or Spotify, as is being rumored, how much longer will Sirius last?

Disclosure: I am long AAPL.

Business relationship disclosure: The article has been written by Wall Street Playbook's tech sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.