Betting On Used Cars
I receive a lot of e-mail regarding the potential of satellite radio in the used car market. While I agree that there is a market there, I have trouble in trying to utilize that factor as a reason to look at SDARS in any manner differently.
The used car channel has the advantage of giving satellite radio potential additional subscribers on vehicles that already have the radio installation subsidized and paid for. This makes that potential subscriber more profitable to the company, but how is that success measured? It is the lack of the ability to measure this metric that always makes me discount it from an investment perspective.
Instead, I try to focus on the metrics that can be measured, and have more predictable results. I look at this used car market as an added bonus should it develop into something more measurable that adds to the bottom line.
While I do feel that SIRIUS XM Radio should try to market to these potential subscribers, I also recognize that there is no guarantee at this point of how successful the marketing campaign would be. How much money should be spent in an effort to get an unknown amount of subscribers?
In order to get to their stated goals, and in order to impress investors, SIRIUS XM Radio needs to offer demonstrable results, and something that everyone can sink their teeth into. I view the used car market as having great potential, but am not hanging my hat on it. Results in this sector are in my opinion an added bonus.
What I feel will happen is that Mel Karmazin will get into a heavier marketing to this segment a few quarters down the road. The company is already addressing the certified pre-owned market, and that can deliver measurable results via reporting from the OEM’s. Extending beyond that too quickly, and investing heavy dollars into a program that is at best an experiment is not a move that I see Karmazin doing right off the bat. Given time, this market can develop further. Many potential subscribers may well activate via exposure to existing advertising.
The bottom line is that the used car market will develop with time organically. Know that it is there, and understand the potential, but in my opinion, don’t use it as a foundation for placing your bets.
Position – Long SIRI
Based upon the stock price today, which is slowy sinking into very dangerous territory by the institutional investors that are bankrupting this company via its stockholders….I begin to ask myself a simple question….Mel karmazin has had 17 months to develop one big surprise, post merger to kick start this stock….Particulary at this place…Netflixs…Apple…Nokia…Dell…Yahoo…Endless opportunities….Well i guess he is no steve jobs…..Not one single collaboration….Hostile takeover time!
The stock price, while bad for investors who want to sell now, has no immediate negative effect on the company. Sirius is fully funded for the next year at which point the cost synergies should raise the stock price.
For my own selfish reasons, I would like to see the price stay where it is for a little while longer so I can continue to accumulate more shares.
Many investors are worried about the price of the stock even that the company is confirm to be in the right track, I think James is right I am waiting for a dip to buy more.
Of great concern to the common shareholders (a.k.a. the unsecured creditors) should be Uncle Mel’s assertion that he is “disappointed” with the street’s reaction to the merger financing. This assertion is quite revealing; It is either disingenuous or ill informed.
Arbitrary accounting standards do not dictate market psychology as to whether or not the merger financing is “dilutive.” The street has already decided that it is and has priced the shares accordingly. Thus it IS dilutive.