SiriusXM (NASDAQ: SIRI) is trying to play a new tune as race from space heats up

SiriusXM (NASDAQ: SIRI), known for its dominance of the satellite radio format that’s popular with listeners who use it while driving in the US and Canada, has had a rough year. Increasingly cost-sensitive customers have been canceling subscriptions, and there’s rising competition from other, on-demand music streaming services that can be delivered globally by cellular carriers or rival satellite networks such as SpaceX’s Starlink.

That’s not stopped SiriusXM from hoping for a turnaround despite a drastic stock rout, and it’s been making strategic moves to attract a younger generation with fresh shows and its own streaming services. It’s also trying to capture a largely untapped advertising frontier: people in their cars.

“We have a real opportunity to provide advertisers a window to really reach those audiences in the car,” CEO Jennifer Witz said at an investor conference hosted by Goldman Sachs earlier this month. Making the case for a slow-and-steady growth story, she depicted the niche as one of the least utilized terrains for addressable advertising and said the company would be able to leverage data from the Pandora streaming network it also owns to perfect the in-car advertising rollout.

Satellite radio emerged in the early 2000s, prior to the rise of mobile broadband and streaming services, which makes SiriusXM a legacy player in a market full of newer competing services from Apple Music (NASDAQ: AAPL) to Spotify (NYSE: SPOT) that can be delivered without dedicated fleets that need to be launched into orbit. That means SiriusXM is having to stay relevant with content, although it enjoys a broad base of loyal listeners and time-tested technology that’s widely available and getting cheaper. 

It’s clear why advertisers would want to pay attention to SiriusXM’s latest plan, even if it’s not the newest game in town. The company’s penetration rate is already over 80% in new vehicles sold in the US, and it has updated agreements with both Ford Motor Company (NYSE: F) and Subaru of America to give drivers access to the platform that reaches 150 million people. That’s a lot of potential listeners, especially with the introduction of reduced-price tiers and limited testing of a free service. Drivers have lots of options, but SiriusXM is ubiquitous in the US vehicle fleet.

In its latest earnings release, SiriusXM said that advertising revenue rose 3% in the first half of the year from the same period last year to $845 million, accounting for about 19% of total sales. The company lost 100,000 subscribers in the second quarter, which it said was an improvement from last year and partially offset by new streaming users. Free cash flow, which is expected to hit $1.2 billion this year, rose 6% in the second quarter compared to the same period last year.

SiriusXM’s shares are currently trading at a 12-year low after plummeting 56% year-to-date amid concerns about the shrinking subscriber base. Witz highlighted healthy free cash flow, moves to reduce debt, and a recent merger with a tracking stock that could open the way for inclusion into some equity indexes and expand its investor base.

At the same time SiriusXM is trying to appeal to a younger audience—it recently signed leading female podcaster Alex Cooper to develop exclusive programing—the company is also working to attract listeners outside of the car with its unique, “human curated” content and app-driven subscription packages that can help it compete in a crowded market and could possibly expand beyond its traditional markets in North America. 

“There really is an opportunity for us to go after this younger set of audiences with this product and, right now, we are working through all of the data and insights we’re getting and watching how younger consumers and our in-car base are engaging with the product,” Witz said, adding that the company has been working on partnerships that can result in new users with companies including T-Mobile (NASDAQ: TMUS) and Walmart (NYSE: WMT). “There’s more to do there,” she continued. 

Despite the recent slump, it appears that the world’s most famous investor likes what he’s been hearing. Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) is SiriusXM’s largest shareholder and has been increasing its stake in the company, according to a recent regulatory filing. That’s a vote of confidence that could bring music to investor ears.