With a sizable number of listeners and subscribers, it'll be interesting to see if Sirius XM (SIRI) can leverage its vast and affluent listener base to produce meaningful advertising revenue.

Advertising accounts for only 4% of the stock's value by our estimates, but the company is making efforts to improve ad sales. The newest initiative, expected in the coming months, is SatRad 2.0, which is said to have a dual business model of subscription and advertising.

Sirius XM makes majority of its revenues through subscriptions, which are highly correlated with automobile sales. Hence, an additional revenue stream such as advertising will be worthwhile in the long run. Terrestrial radios and Internet radio such as Pandora (P) and Spotify are advertisement-focuse​d models compared with Sirius' mostly commercial-free approach.

Our complete analysis for Sirius XM Radio's stock is here

Advertising a small piece of Sirius XM revenue

Sirius' advertising income got a boost after it merged with XM in 2007, increasing from $34 million in 2007 to $70 million currently. However, this is small percentage of Sirius XM's overall revenue mix, with the majority of the revenue coming from subscriptions. This business model makes it highly dependent on automobile sales and the overall health of the economy.

While the company has been exploring new avenues to improve ad sales over the years, the commercial-free approach that has brought it thousands of subscribers has also held it back.

What does the future hold?

Though small, Sirius XM's advertising revenue has slowly been improving, increasing 18% from a year earlier in the third quarter and by 16% for nine months ended Sept. 30. According to the company's press statement, the increase was "primarily due to more effective sales efforts and greater demand for audio advertising resulting in increases in the number of advertising spots sold as well as the rate charged per spot."

In a survey by The Media Audit a couple of months back, Sirius XM's listener time increased by 19% in the past three years as a sizable number of satellite radio listeners tuned in to news, sports, and public radio. These three segments in particular offer tremendous opportunity for Sirius to grow advertising revenue as they are non-music channels and can more creatively broadcast ads in the form of corporate sponsorships for shows and celebrity endorsements.

While we forecast Sirius XM's advertising revenue will increase from $77 million in 2012 to $131 million by the end of our forecast period, Trefis members expect an increase from $75 million in 2012 to $120 million during the same period.

We currently have a Trefis price estimate of $2.11 for Sirius XM Radio's stock, about 10% above the current market price.