Basic OEM Math For Sirius XM Investors
Here at SiriusBuzz, we make a big deal out of increased penetration rates of satellite radio in the OEM channel. As the month of August begins to draw to a close, some reports are already coming out regarding weak sales, although they are expected to be better than July.
Recent articles put the current annual rate of US car sales at 13.4 million, which is much higher than the 12 million vehicle estimate given only a few weeks ago, yet lower of course than the 16.1 million sold in 2007. In 2006 that number was 16.55 million. It is this larger than expected slide that has caused nervousness in the sector.
Despite weak sales, many analysts such as Tony Wible of Citigroup contend that the increased penetration rates will more than offset the decline in US auto sales. Let’s look at the the numbers:
2007: 16.1 million x 40% pentration = 6,440,000 satellite radio equipped vehicles sold
2008: 13.4 million x 50% penetration = 6,700,000 satellite radio equipped vehicles sold
(For arguments sake, lets make some oem sales assumptions regarding 2009)
2009: 12 million x 60% penetration = 7,200,000 satellite radio equipped vehicles (worse case scenario)
With a subscriber take rate of approximately 50% , this clearly demonstrates that satellite radio sales through the oem channel will continue to rise. Contrary to popular belief however, analysts are not stupid. Most of their satellite radio growth models correctly forecasted the increased penetration rates, but they were based on annual sales of more than 15 million units, and as such, most have lowered their growth forecasts for the next several years. This has affected the stock price.
Despite the seemingly doom and gloom scenario the potential exists for more than one upside surprise. Sirius XM cannot do anything about high oil prices nor can they do much to increase overall auto sales. The thing they can do, is increase the take rate on the new cars that are in fact sold.
The potential for this exists ironically from the retail channel as most expect a major marketing campaign this fall. Already we have seen a glimpse of this through company issued statements that over 18 million people have adopted the service. The reason everyone has or wants a flat screen HD TV is because of the perception that everyone else already has one. As the popularity of satellite radio continues to grow, so too should overall demand. Just increasing the OEM take rate rate from 50% to 60% would have a dramatic effect on the bottom line, analyst forecasts and the stock price.
Position: Long SIRI
You hit the nail on the head Brandon. This could not have come at a BETTER TIME for Sirius XM. A slumping economy and the company is still growing. As Tyler said in a recent article, once the economy starts to rebound, Sirius XM is going to be poised for even better growth and a lot more of those upside surprises you are talking about. I personally believe 2008 and 2009 will be the years of SatRad. The economy will turn around and you will see this company soar.
It’s strange. Today the stock price is going even lower…but I am totally at peace now.
There is something so comforting in the security of knowing in my gut that this stock is MASSIVELY undervalued.
It’s like TAKE it LOWER…you ain’t going to shake me outta my position! And um….should I buy even more? 🙂
I am totally prepared for these next 2 quarters being a tug of war between the shorts and longs. The difference now is that Mel can TUG BACK.
Looking forward to the news after labor day and going forward.
i also think that ANY serious effort to bring out new store sold devices and aggressively market them will also add sinificantly to the bottom line–considering there isnt really any sales in this arena makes it easy to increase the numbers–It also should be remembered that most of the sales for both came from the Best Buy/Circuit City/Crutchfield venues a couple of year back but that was due to major ads, promotions and new products–Its time to creat the excitement again
The issue that investors have to be concerned about is that if retail does not pick up, you are talking about OEM’s that need to increase enough to offset churn on a higher base each year.
If retail can negate churn, then OEM increased penetration goes right to the bottom line of net subs.
Thanks god for the 4th quarter retail to give a boost to this.
Before you get too carried away again, try this one on for size . . . according to an article in the Friday, August 22 edition of “USA Today,” the 2009 Honda Fit will NOT be equipped with Sirius XM receivers but rather an MP3 jack!
How’s that for a little dose of reality? Oh well, let the rationalizing begin . . .
Anything can be added onto the Honda Fit.
Sirius Roadkill, WoW not going to be standard on the Honda Fit. Why not recited all of the other vehicles that SAT RAD is not standardly equipped. The glass is always half empty, just like the OEM market, 50% penetration rate. Hows that for a little dose of what everyone here already knows.
Brandon thanks for the dose of reality. It is a foundation for the company and investors to begin with and that’s before increases in Retail. All those unfortunate folks who will need after market “Retail” units installed in their Honda Fit. Along with a company campaign to come back at the Used car market’s new owners for their subs. There is a lot of potential and I do believe Mel and his team can deliver it.
frigginreagan, I’m with you on feeling rather comfortable with my assessment of this company. I just nibbled in with another 1250 sh @ 1.35. I just want to be on this side of the Appeals deadline and Labor Day.
Hey Cos . . . how’s that “channel formation” lookin today bubba?
I’m still waitin on that big-big $1.50 breakout from two Mondays ago (LOL).
I betcha Honda officials are conspiring right now with Cramer and Wienkes . . . yeah-yeah, that’s the ticket . . . can’t wait for that big post Labor Day announcement . . .
p.s. I guess you’re not even the least bit curious why Honda made the conscious decision NOT to equip the ’09 Fits . . . said the spider to the fly . . .
Roadkill… The quadrunner I bought for my 9 year old doesn’t have SATRAD either so, what’s your point?
FWIW, those numbers are likely a little light — even with the downturn.
XM alone did about 3.4 million installs in 2007 and has been on pace to easily eclipsing 4.0 million in installs for 2008. If there was no downturn, then they would have done 4.5~4.6 million. Remember, Toyota & Nissan are ramping up for XM here in 2008.
Anyhow, looking over their numbers — it appears that they have done at least 1.8 million installs in the first half of 2008, and will easily get enough to top 4 million. XM has had a long-term goal of topping 5.0 million in 2009, which I still believe is doable — at this point.
With XM doing 4 million, I believe that Sirius is still doing at least 3.0-3.5 million installs too this year… which would put the combined numbers up to at least 7 million, and likely more.
Regarding Honda… lest everyone forget that Honda had over $125 million worth of debt and equity in XM (now in Sirius/XM); plus they have a seat on the Board of Directors; and a contract with XM that is paying the revenue for every install/subscriber. Just a dose of reality.
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. . . and why pray-tell Homer is it thus not being installed in the 2009 Fit?
Honda has been at 60% penetration (Honda/Acura combined) for a long time — they’ve given no indication that they intend on going much above that (or below it). That penetration has been achieved by being standard in all Acura models (which accounts for 25% of the Honda XM installs) — with the remaining amounts coming from the upper end models from Honda (mostly Accord’s and Civic’s).
The Honda Fit is the cheapest car made by Honda — and is stripped down for the younger car buyer, with limited funds (starts at $13k). It sold just 56K units, out of Honda’s 1.37 million sold in all of 2007. It’s on pace to sell fewer than 100K in 2008. Comparatively speaking, the Accord and Civic is on pace to sell nearly 800K combined this year.
As long as Honda continues to hit their 800K~1 million annual installs, what they do with their economy vehicles makes no difference to me.
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Roadkill, I never called for a breakout at $1.50, and my pseudonym is not Bubba. Your a lot of questions with very few answers, a lot of sarcasm without anything to add to the conversation. Please save your “Socratic” and “Sarcastic” approach your Yahoo and Seeking Alpha Posts. For me all you try and do is divert attention to meaningless metrics as Homer985 clearly explained above.