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Satellite Radio: Wall Street Isn't Seeing the Full Picture

by: Brandon Matthews August 07, 2008 | about stocks: SIRI    

Brandon Matthews

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The first time I bought Sirius (SIRI) stock was back in 2003. I averaged my purchases out at 1.31 per share. I sold when it hit 9.00 because as a realist, I understood then that the gains were not sustainable. I would never have thought I would live to see the stock retreat to such an attractive level again in my lifetime.

A recent JD Power & Associates report indicates that satellite radio penetration is rapidly rising. This is wonderful news for Sirius XM investors and consumers. But there is something being completely overlooked by Wall Street, which translates into an exceptional ground floor opportunity for investors.

I’ve been bullish on satellite radio since I first became a subscriber. The service is outstanding. I often see writers who do not share my optimism who publish articles stating that Sirius will lose market share to such things as iPods, hybrid digital radio and the Internet.

I could go into details as to how higher penetration rates offset lower auto sales. I could write about the extra revenue that will come from offering Howard Stern on XM or the expected increase in ad sales. Those things apply to satellite radio. I believe that people mistakenly view Sirius XM as only a satellite radio company, and therein lies a major problem with respect to the current valuations.

Sirius XM has many revenue opportunities other than satellite radio. We’ve all heard of Backseat TV, and many have hardly given it a second look. Overlooked by Wall Street geniuses is that it is now being made available in the automotive aftermarket. It’s even made it’s way into the latest Crutchfield catalog. Their Sirius Music for Business service is taking market share from Muzak. Sirius Marine Weather provides high-quality marine weather information to pilots and mariners. All these services create extra revenue streams and help lower churn, as the ancillary services are dependent on a Sirius XM satellite radio subscription.

There is a lot of potential in the used car market also, as Sirius XM equipped vehicles are traded in and resold. Most beneficial is that there are no chip subsidies on these secondary subscribers. But the most overlooked aspect of Sirius XM revenue comes from the new navigation systems.

Starting right now, with the Ford 2009 model year, the Sirius Travel Link system is available. Not only is this another revenue stream, the important aspect is that it is bundled with the satellite radio service. That means vehicle owners who want the navigation system will not be canceling their Sirius XM subscription. Likewise, on the XM side, XM NavTraffic will be available in 22 General Motors models this year, as well as Infinity and Porsche.

From the JD Power report:

For instance, nearly 60 percent of consumers say they want a navigation system on their next vehicle, and 66 percent of consumers want the ability to play MP3 files. To meet or exceed consumer expectations, manufacturers will need to focus on incorporating high-tech features in multimedia systems while avoiding increases in problem levels.

All of this creates the potential of lower churn and higher revenues. With the cost cutting underway, the debt issues resolved and new revenue sources, I’m now more bullish than ever. It’s time to stop looking at Sirius XM as a satellite radio provider, and start looking at them as a complete technology company. When Wall Street figures this out, I’ll be kicking myself for not owning enough shares.

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This article has 17 comments:

  •  
    Aug 07 08:13 AM
    Awesome article and very intelligent insight to all of the additional aspects that the new Sirius XM will provide. I'm a pilot and have had XM weather on my GPS system for quite some time now. To be honest, I would never fly again without this most important safety feature. I truly agree with your article and look forward to the success of satrad!
    Reply
  •  
    Aug 07 08:18 AM
    As Mel stated in the NYTimes he considers himself an operator so let me provide you with the vision thing going forward to flush out your article above.

    Organic potential for Sat Rad includes not only immediate synergies and doubling of the subscribers via one entity, but also the following growth strategies extending across multiple verticals.

    1)

    Look for a Music library from the combined entity that dwarfs the itunes selections with minimal additional royalty arrangements. Look for high end tiers that will include 2 or 3 free downloads / month with your subscription. Library will be open to anybody for $.99 / song.

    2)

    Look for advertising revenues to bump up significantly given the 20 million audience and rising. Also look for 100% penetration, sooner rather than later, as OEM installs increase across the board.

    3)

    Watch for a clear strategy involving branding and a huge retail push across new hardware for the upcoming holiday season.

    4)

    This service will soon be re-invigorated on the desktop with new Operating System software.
    OEM loaded this software will enhance the capture and delivery of streaming across devices such as the iphone and the new handsets from Nokia and Samsung, extending it's reach over multiple platforms.


    5)

    Look for this desktop software to include a Pandora like option, relative to the new library, that will be delivered via a streaming format. Structure will either be advertiser sponsored or subscription based.

    6)

    Be ready for Sirius to challenge Clear Channel, over time, relative to concert promotion and on demand broadcast of concerts nationwide. Both live and recorded. Look for them to include and share revenues with the artists regarding downloads of entire venues.


    7)

    Watch for expanded video offerings and GPS inclusion in new car installs.


    8)

    Look for expansion in Western Europe beginning with Britain in 2010 / 2011

    9)

    Also look for Sirius.TV which will be a show created for cable that covers Sirius, what it is up to and include special features.




    Reply
  •  
    Aug 07 08:27 AM
    The used car segment is the most overlooked.
    Reply
  •  
    Aug 07 08:52 AM
    The above story, comments, and predictions are motivating factors for me to buy more shares.
    Reply
  •  
    Aug 07 09:47 AM
    Ripped,

    Are these simply your predictions? If not, where can I find the facts which support them? I've always been bullish on Sirius and I love the possibilities here. I just don't want to fall into a pump and dump trap here. All these things were possible whether the two combined or not. So, why is now the time when all these strides should be made? Why not before?

    There's an awful lot of debt tied up in this thing right now. It's a relatively big risk for me to shift assets (which I am wont to do) to SIRI, even with one of the best entertainment CEOs ever running the show and buying more shares.
    Reply
  •  
    Aug 07 11:05 AM
    SIRI now needs to make a Cell Phone Client (i.e. for iPhone, Blackberry, Nokia N-series; 3G can easily support audio streams up to 128kbit)...they might lose out on some device sales, but the increase in customers will far out weigh any marginal decline in co-branded products
    Reply
  •  
    Aug 07 11:28 AM
    I agree with Tarun. I think they should go after all of the cell phone manufacturers since one of their concessions is that their technology needs to be open. This would add value to the manufacturers that have SiriXM and cause the ones that don't to want to have it.
    Reply
  •  
    Aug 07 11:29 AM
    Are these simply your predictions? If not, where can I find the facts which support them? I've always been bullish on Sirius and I love the possibilities here. I just don't want to fall into a pump and dump trap here. All these things were possible whether the two combined or not. So, why is now the time when all these strides should be made? Why not before?


    The merged company has more bandwidth to play with as they will eventually get rid of redundant stations. sat tv without a dish! nice!
    Reply
  •  
    Aug 07 01:24 PM
    Even though they operate a vast swath of radio bandwidth, ultimitately there is only 4 megabits of total bandwidth available per service. This is hardly enough for meaningful TV service. Indeed, Backseat TV is almost always low-bandwidth cartoon programs which compress easily on the MPEG4 H.264 mobile profile. It doesn't lend itself that well to actual real video programming.

    That pitiful 8 megabits of total space available to Sirius XM, even if they were to merge their systems, isn't even half the space that one transponder takes up on DISH Network or DirecTV. Multiply that by the hundreds of transponders that DISH and DTV have.

    Sirius XM Backseat TV is irrelevant.
    Reply
  •  
    Aug 07 01:59 PM
    I agree with the article, but we have to see the full Wall Street picture also. Almost all stocks are down, way down. Some of the Financials are 1/10th of their value a year ago. They look very attractive and the big money is on the sidelines waiting for a sign that the market has finally bottomed for financials. Bottom line, the rest of the stock market is the competition for Sirius' stock. Sirius stock price may not rise until Sirius has turned the corner to positive cash flow and real earnings can be more accurately forecasted. I'm afraid we are in for a long haul to get back above $3 per share.
    Reply
  •  
    Aug 07 03:51 PM
    They wont talk about all those things, because it would become harder to justify the complete and utter manipulation of this stock. Come one people!! Dont you watch level2 live quote streaming? You can see that every time it approaches a penny up, they throw shares at it, and every time it goes down, they pull shares. Ive seen 3 to 1 around ask vs. bid with ask 3 times more hits. It only takes a quick minor down with way less shares and it drops a penny. This volume dictates manipulation as well. When the banks decide its time for this stock to take off, they will let it. And not one day before. They want to make sure all weak hands have transferred shares to the rich and smart. THEN, they will pump it, and get you to buy so it will drive up their share price when they have accumulated all the stock they think they can get cheap. Why do you think stocks only rise when they are negative usually? Its reverse sentiment. They want you to dump the stock, and they will turn it positive only when they want you to buy to raise the price, while they hold the entire time. Not complicated, and its easily witnessed if you watch the stock trade. All this other stuff is just noise. Im serious when I say they could drive this stock to .90 cents if they wanted too. Its, right now, on potiential alone, a 2.50 stock, and everyone knows that.
    Reply
  •  
    Aug 07 04:58 PM
    Sirius XM Backseat TV is irrelevant.


    You must not have read the article that said sirixm is putting up another satellite early next year. Not sure what the capabilities of the sat are but i wouldnt call Mel stupid. You have to know he has something up his sleeve. I have my bet on Mel.
    Reply
  •  
    Aug 07 06:52 PM
    I own Ten(10) shares now, but I eventually want to own at least a thousand!!
    Reply
  •  
    Aug 07 10:53 PM
    aclue2u - The new satellite is equiped with a hypno-laser , designed to make the whole world fall madly in love with howard stern and oprah winfrey ......along with the subliminal message , " 12.95 a month is a damn good deal , 12.95 a month is a damn good deal , 12.95 a month is a damn good deal " ........
    Reply
  •  
    Aug 10 01:49 AM
    www.financialsense.com... ......long interview , but informative on naked shorts ....click a media player for audio interview
    Reply
  •  
    Aug 10 10:17 PM
    I will look forward to hearing all this from Mel. Until then it's speculation and pump.
    Reply
  •  
    Aug 11 12:16 PM
    2 questions (Note - I live outside the US):

    * In winter, would the satellite reception get messed up in bad weather? My satellite TV reception can get pretty poor during storms.

    * If the above question is "yes", is radio reception also poor during storms?

    * Technologically, could satellite phones be incorporated into cars using Sirius technology (or has this already happened :)? This would be a great back-up for people that travel a lot, in areas with no cellphone reception.
    Reply
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