Some Good Points Made Here . . .
MARCH 30, 2010, 2:22 PM ET
Sirius Could Offer Low-Priced Limited Plans To Used Car Owners
By Eric Savitz
The single biggest growth opportunity for Sirius XM (SIRI) could be the increasingly large number of people driving around in used cars with satellite radio receivers that aren’t being used.
In a research note today, Lazard Capital analyst Barton Crockett estimates that there are 27 million cars on the road with pre-installed satellite radios - and only 11 million of them are subscribers. By 2015, he says, the number of cars with pre-installed radios should grow to 70 million.
The conundrum for Sirius is how to convert more used car drivers into paying subscribers. According to Crockett, SIRI CFO Dave Frear says one approach would be to offer a low-end limited channel option which could expand the market to more cost-conscious consumers without cannibalizing subs to the full channel lineup you get as a new car buyer.
Crockett’s note follows a series of investor meetings with Frear that were hosted by Lazard; here are a couple of useful tidbits from his report:
Frear sees churn improving in 2010; he notes that credit-card defaults are the leading cause of self-pay churn, and says they should go down as the economy recovers.
The CFO sees subscriber acquisition costs/gross subscriber add coming down as more new users come from used cars.
Frear sees downward pressure on programming costs. As for Howard Stern, Crockett says Frear doubts he goes back to terrestrial radio; he also “seems to doubt that Sirius pays more to renew Stern,” adding that the shock jock could “work less, or retire, or come back same as before.”
The CFO laid out for Crockett a path to consolidating the two satellite radio services, which could start by switching all automakers over to one service for future new cars. Crockett says it might make sense to make XM the default choice, since it already is in more new cars than the Sirius service. Over a decade or so, they would consolidate around one service, and eventually sell the other satellite network, or use it for new services.
Meanwhile, on what he calls the “share count flap,” he says that many investors do not like the company’s unusually high 6.5 billion fully diluted share count. A reverse-split could cure this, but Crockett writes that “Frear argues that the low price could appeal to the core retail investors that are Sirius’ key holders.” The analyst says Frear thinks any benefit from appeasing institutional investors over the company’s penny stock status would risk losing core retail holders.
SIRI today is down 0.3 cents, or 0.4%, or 83.9 cents.
David Frear is starting to grow on me . . .
More Musings from thestreet.con
Loss Aversion
No one likes to lose money, but many investors stick with an investment much longer than they ought to in the attempt to avoid losses. Investors are unlikely to think of a loss as a real thing until the stock has been sold and the loss realized, but this is, of course, ridiculous. In the worst-case scenario, this aversion may also lead to increased risk-taking as the investor doubles down in hopes that the gain will wipe out the loss.
This problem can be seen in investors who rabidly support stocks, like the community that has sprung up around Sirius XM(SIRI). Becoming "married" to an investment is never a good idea. As satellite broadcaster Sirius fell from the high single digits to below $1 over the past few years, many investors lost a substantial amount of money. For an investor who had an average cost basis of $6 when the stock fell to $3, he lost half his money. If he had cut his loss and invested in a S&P 500 Index, he would have lost 55% despite the incredible decline in the index at the end of 2008. By sticking with Sirius the entire time, the investor lost 85%.
Accepting that an investment may have been a mistake and moving on to more fertile ground is nothing to be ashamed of. Professional investors do this constantly. Sirius may have an interesting product, but as we saw earlier with representativeness, one shining factor can't outweigh all the disadvantages.
Hi Jimmy . . I have a question . . .
What if I bought shares of Siri at $0.06 Jimmy, and ignored you when you said it was worthless at $0.25 (which was just before you said it was worth $0.60 before a Goldman sell) and today it closes at $0.83. Would that mean that I gained 1,283% Jimmy?
Jimmy Cramer . . from New Hope potting shed to world's smartest man . . it's ok Jimmy, the "Peter Principle" is real . . . nuthin to be ashamed of.
Goldman & Erin still love ya . .