Sirius XM Radio (NASDAQ:SIRI) is facing a class action suit filed by a nationwide group of the company subscribers that alleges antitrust law infringement because the company has abused its monopoly position and increased its fees by 30%. Sirius is the largest satellite radio company in United States and is mainly distributed through automakers and retail locations as well as through Sirius’s own website. Sirius XM has ties with major automobile manufacturers such as Ford (NYSE:F), GM (NYSE:GM) and Toyota (NYSE:TM), which help drive its presence in the U.S. automobile space. Under the regulatory threat, lower fees could exert negative pressure on Sirius XM’s average revenue per subscriber leading to downside from our forecasts.
Sirius competes with Cumulus Media Inc. (NASDAQ:CMLS) and Westwood One Inc. (NASDAQ:WWON), as well as traditional AM/FM radio and Internet radio offerings from Pandora and Rhapsody. We currently have a price estimate of $2.00 for Sirius XM Radio’s stock, which is about 10% above market price.
While we currently estimate a steady increase in Sirius’s average revenue per subscriber, we believe that the threat of antitrust law infringement can force Sirius to keep the average revenue per subscriber constant rather than gradually as we currently anticipate. This would imply 25% downside to our price estimate of $2.00 for Sirius XM Radio’s stock. This scenario would put our estimate for Sirius XM Radio stock at about $1.50 billion.
You can drag the trend line in the interactive chart above to test this scenario, and others, and see the potential impact on Sirius XM Radio’s stock.
Disclosure: No positions