The Shocking Truth About Sirius XM's Decline

NEW YORK (TheStreet) -- Since Liberty Media (LMCA) announced that it was no longer interested in buying the remaining portions of Sirius XM (SIRI) it doesn't already own, Sirius stock has been in a perpetual decline.

Although the stock closed up 1.4% Monday to $3.20, shares are still down 8% year to date and down 23% from their 52-week high. Remarkably, despite the fact that three analysts have issued price targets for Sirius of $4 or more, these shares, which have lost 11% in March, remain under pressure. And if my suspicions are correct, things are about to get worse.

With a full quarter of the year now gone, investors need to be smart. The Street has no choice but pay attention to (among others) Apple (AAPL). Not only has Apple introduced CarPlay, the tech giant has already struck deals with several car manufacturers to control the dashboard.

Apple is going after Sirius' domain. The connected car is seen as the next leg of growth. Yet many Sirius investors insist Apple is no competition to Sirius.

As far as they're concerned, Pandora (P) is "no threat" either, even though Pandora is the market leader in radio listening at close to 7% share. Investors are unable or unwilling to explain how Sirius, which is said to be "a monopoly," doesn't have the sort of pricing leverage that a monopoly should enjoy.

I've made this point recently and it's worth repeating here; to stay alive, Sirius desperately needs another source of revenue beyond the automobile. Apple is getting ready to steal that market away. The stock's recent decline suggests that the Street has become aware of this possibility, and it's only going to get worse.

Over the past couple of years, Sirius' revenues have been driven by rising auto sales. This can't continue forever. As the number of vehicles on the road with factory-installed Sirius XM radios reaches saturation levels, the revenue trend will have to decouple from auto sales. It's simple economics.

Sirius' management understands this. This is why they've issued 2014 revenue guidance that calls for just 4% year-over-year growth. By contrast, Edmunds forecasts 16.4 million light vehicle sales for 2014, or 6% above 2013 levels. Sirius investors will say, "Big deal." They will remind that management is known for "low-balling guidance." This time, however, management is telling the truth.

Three years ago, (then) CEO Mel Karmazin estimated that there were already 40 million cars on the road with Sirius installed receivers. Karmazin (then) projected that by next year (2015) there would be over 70 million cars on the road with Sirius already installed. That's an average saturation rate of 10%. Given Sirius' slowing penetration rate, Karmazin's prediction is proving true.

Between 2009 and 2011, Sirius had penetrated the original equipment manufacturer market (its auto partners) at a rate of 22%. But from 2011 to 2013, Sirius' penetration rate plummeted to only 4%. Why do you suppose that is?

It means revenue growth has begun to flatten. And by this time next year, Sirius will see that the number of cars on the road with satellite radios have peaked. What do you suppose happens to the stock then? It's not going to be pretty.

Investors will brag about share buybacks, cash flow and all these other metrics. That's all well and good. But with no organic growth to speak of, how long will the cash flow maintain its level? It can't. And the Street now realizes Sirius is running out of time.

At the time of publication, the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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