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OEM Math Leaves Room for Upside Surprises for Sirius XM

by: Brandon Matthews August 25, 2008 | about stocks: SIRI    

Brandon Matthews

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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% penetration = 6,440,000 satellite radio equipped vehicles sold

2008: 13.4 million x 50% penetration = 6,700,000 satellite radio equipped vehicles sold

(For argument's sake, let's 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 (SIRI) 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

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This article has 16 comments:

  •  
    Aug 25 05:05 PM
    I will lose my confidence for the stock. I brought the stock 1500@$2, I don't know when I can got the money?
    Reply
  •  
    Aug 25 05:19 PM
    I don't know when will the price of this stock be up. I bought 1500@$2, I don't know when I can get the money?
    Reply
  •  
    Aug 25 05:45 PM
    Time will tell the success story of Sirius XM
    THE BEST RADIO ON RADIO : THE CELL PHONE, THE IPOD, THE CAR, THE BOAT, THE PLANE, THE INTERNET and the list grows.
    Reply
  •  
    Aug 25 05:51 PM
    Blahh, Blahh, Blahh. $1.33 and falling.
    Reply
  •  
    Aug 25 05:56 PM
    Thats right scotty48, keep falling so we can continue to load up!!!
    Reply
  •  
    Aug 25 06:07 PM
    as a result of this SIRI will climb to $4 soon
    Reply
  •  
    Aug 25 06:25 PM
    Is it a good news?
    Michelle Obama Interviewed Today by XM's Gayle King in Advance of Opening
    Night Address to the Democratic National Convention

    Michelle Obama, wife of the presumptive Democratic party Presidential
    nominee Sen. Barack Obama, was today's featured guest on Gayle King's daily
    radio show, which airs on XM's "Oprah & Friends" channel (XM 156), kicking
    off The Gayle King Show's week of live broadcasts direct from the 2008
    Democratic National Convention in Denver. King's interview with Michelle
    Obama took place just hours before her opening night address to the
    Democratic Convention, where her husband will become the next Democratic
    presidential nominee. Selected excerpts from the interview are provided
    below.
    Reply
  •  
    Aug 25 07:02 PM
    Last out of the gate. First at the finish line. Might as well maintain a sense of humor.
    Reply
  •  
    Aug 25 07:14 PM
    A great product does not always translate to a great stock. I hope it does for my sake but oh well we will wait til each quarterly report. Kinda like running around a track and seeing the fast guys increase their lead each lap but hey a second wind's commin baby
    Reply
  •  
    Aug 25 09:17 PM
    WoooooHooooooo, buy now and reap the rewards sooner rather than later. Double or Triple your money you invest now before May 2009. Stock will be above 3.50/share by then and will only go up from there. Watch out baby, were getting ready to rock n roll......Boooooo Yaaaaaa
    Reply
  •  
    Aug 25 11:21 PM
    I'm sticking it out ,only 450.00@4.50 and now 1.33 I'm in for more and a rich future.
    Reply
  •  
    Aug 26 07:52 AM
    Must find a way to get the consumers who are buying used vehicles that are equipped w/ sat radios. The hardwares already there at no cost to Sirus Xm. Everyday there are thousands of used cars being sold. Give them a free month or two to try it out. I bought a used honda for my daughter and when we got it home I called and had the Sat. Radio on in a cuple of minutes. A real no brainer.
    Reply
  •  
    Aug 26 11:19 AM
    unless white people want to be called european americans, they should stopp calling black american african americans.,if some black americans want to call themselves african americans then thats there stupid business.
    Reply
  •  
    Aug 26 12:13 PM
    i don't know why people don't think long term about this stock. who care's if it goes to $1 a share in the short-term. until the financing issues get resolved it's unlikely we'll see any big moves in this stock. but is there any doubt that in 5 years this stock will be somewhere between 5-10 bucks? not sure there are too many stock out there with "very real" propects of 300-500% return over the next couple years...
    Reply
  •  
    Aug 26 01:20 PM
    The only problem is SatRad has to actually be perceived as something everyone already has, like flat screen TV's. I mean I have faith that this will eventually happen, but once again, this is a long term concept. Like SIRI's stock price, I just don't think we'll see any big moves until the converts issue is resolved. The declining car industry is obviously an obstacle, but I think SIRI can find ways around it with portable devices and existing subscription upgrades along with OEM's. Regardless, its good to see some positive numbers for this company!
    Reply
  •  
    Aug 26 09:54 PM
    Wow, there are a lot of ignorant posters on here. To Kris23, "it has to be viewed by as everyone owning it" So thats what dictates a stock price? I wont even comment, its too slow thinking for me. Wont go up due to refianancing issues? Where are you going to get a rate of return on a bond from a stable company as large as Sirius? No where. They wont have a problem getting refinancing. The reason and the only reason this stock is where it is is because of CONSTANT DAILY SHORTING, its a wall of up to 1.5 million shares, and its job is to keep the stock price low so there is a transfer of wealth, from you who bought at 3 and up, to the smart money, who want it at 1.30. Once the merger was approved, the smart money didnt want to buy it at 3 of 4 or more after the huge short covering, so they choose to manipulate it to these levels instead.
    Reply
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