How Much Does iPhone App Really Add To SIRIUS XM's Business? (SIRI, AAPL)

SIRIUS XM Radio (NASDAQ: SIRI) subscribers are only hours away from the launch that will allow the satellite radio monopoly subscribers to access content via the iPhone from Apple Inc. (NASDAQ: AAPL).  Unfortunately, this won’t be one of those 99-cent apps via Apple.  The good news is that the incremental revenues will help SIRIUS XM.  The bad news is that the move won’t fix all of SIRIUS XM’s woes.

The iPhone App looks to also be available for iPod Touch users, and it will actually be free for SIRIUS XM’s internet radio subscribers.  For new users who want it, the App will run $2.99 per month.

SIRIUS XM has roughly 19 million subscribers.  In case you’ve been in prison for a decade or haven’t seen the economic news, the company isn’t exactly able to count on the gangbuster pace of new car sales to be the next growth catalyst.

The recent quarterly decline in SIRIUS XM customers has been blamed on poor car sales, and it is probably easy to guess that with unemployment headed toward 10% and with auto sales till running at a crawl that we do not have exactly the  most robust hopes for 2009 being the greatest year for satellite radio subscriber growth.  Apple has sold more than 40 million of its iPhones and music-playing iPod Touches to date, with a substantial portion in U.S. where Sirius’s nationwide broadcasts are concentrated.

Pandora and Slacker Apps are already available.  Other radio options are available as well.  It seems that the App will be most wanted by sports fans, Stern-ites, Martha and Oprah lovers, and others.  The question is whether or not the army of non-SIRIUS iPhone users will come on board.  This could represent a few million users, but defining that “few million” is guesswork so we won’t hang our hat on a firm number.

SIRIUS XM shares rose what may be too much on this launch.  Shares were up almost 23% at $0.296 at the close and it appears as though the after-hours volume had the stock up another 8% at $0.43.

We have been in favor of using total risk-based capital to buy shares of SIRIUS XM for a while now.  We started that call for our “Stocks Under $10” newsletter when the stock was under $0.15.  Whether the iPhone App makes or breaks that is not the case.  At $3.99, each 1 million iPhone non-SIRIUS subscribers will add almost $12 million in quarterly revenue before accounting for any Apple split of the revenue.  SIRIUS generated $586.979 million in Q1-2009 revenues and generated $622.183 million in Q4-2008 revenues.

SIRIUS XM has gotten at least much of its house in order and it is no longer on the cusp of a financial implosion.  If you want to own the stock of SIRIUS XM, we’d only say you might want another reason besides the iPhone App launch.

Jon C. Ogg
June 17, 2009