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SIRIUS Consolidates Auto Market Presence

Zacks Equity Research

SIRIUS XM Radio Inc. (SIRI), the largest satellite radio broadcaster in the U.S., continues to collaborate with automobile manufacturers and gradually shift its business model from a pure radio entertainment provider to a Web-based safety and navigation information provider for cars. We expect these initiatives to fortify the company’s position in the automobile space.

Recently, the company decided to acquire the connected vehicle services unit of Agero Inc. for a total consideration of $530 million in cash. The deal is expected to close by the fourth quarter of 2013, subject to the customary regulatory approval.

Agero has strong telematics partnership with almost all major car manufacturers including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota. The deal will enable SIRIUS XM to offer satellite and wireless services.

Recently, SIRIUS XM crossed the 25 million subscriber base with a record net addition of 715,000 customers for the second quarter of 2013. The company gained approximately 1.17 million subscribers in the first half of fiscal 2013 with an average of 583,945 customers per quarter as compared with 1.03 million subscribers added during the first half of fiscal 2012 with an average of 513,319 customers per quarter.

Such robust subscriber growth is mainly attributed to increased automobile sales, successful collaboration with different automobile makers and the continuous launch of innovative products. Moreover, with the acquisition of Agero, the company will further expand its subscriber base while moving ahead.

Three months back, SIRIUS XM entered into a partnership with AT&T Inc. (T) to offer emergency support, stolen vehicle tracking and roadside assistance to all connected Nissan Motors cars in North America. SIRIUS XM currently offers satellite-radio broadcasting services in more than 50 million cars in the U.S. This figure may double with wireless-based telematics services in its kitty.

In June, SIRIUS XM started offering the Sync AppLink technology to Ford Motor Co. (F). The technology allows users to use voice command to change channels while driving.

Hence, we believe that such value-added services coupled with increasing program line-ups will not only drive subscriber growth but will also counter competition from other media players like Pioneer System and Pandora Media, Inc. (P).

Currently, SIRIUS XM has a Zacks Rank #3 (Hold).

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