The number of
(NASDAQ:SIRI) automotive subscribers has been rising consistently
over the past few years led by an increase in light vehicle sales
in the U.S. as well as new vehicle penetration. We recently wrote
how strong automobile sales have helped Sirius XM increase its
subscriber growth by 9% y-o-y in Q1 2011. (See
Strong Auto Sales Drive Sirius XM Subs Growth
) We believe Sirius XM's automotive subscribers will continue to
grow aided by the long-term deals signed with big auto-makers like
General Motors (
), Ford (
), and Hyundai. The global economic recovery and tax incentives
will also boost car sales thereby benefiting Sirius XM.
Sirius competes closely with Cumulus Media Inc. (
) (America's second largest operator of radio stations) and
Westwood One Inc. (
) (the largest provider of audio content in America), as well
as traditional AM/FM radio and internet radio offerings from
Pandora and Rhapsody.
We have a
Trefis price estimate of $2 for Sirius XM's
, implying a slight discount to the current market price.
Economic Recovery, Tax Incentives Boost Car
With the global recovery in swing, consumers are likely to
improve their spending habits. According to a recent forecast by
Oxford Economics report, the auto sector will be the fastest
growing US industry in the next five years. Tax breaks on vehicles
including passenger automobiles, motorcycles, motor homes and
trucks will likely spur sales. Additional tax credits for
choosing hybrid, fuel cell, alternative fuel and advanced lean-burn
technology vehicles will boost automobile sales as well as Sirius'
Sirius' Long-Term Deals with Automakers
Every year Sirius XM pays out over $200 million to their OEM
partners to keep their radios flowing into the new car market at
around a 60% penetration rate. Sirius XM has ties with major
automobile manufacturers such as Ford (
), GM (
) and Toyota (NYSE:TM), which help drive its presence in the
U.S. automobile space. The company has also entered into a
partnership with Hyundai wherein consumers across the United States
will receive a 3-month introductory subscription to XM when they
purchase Hyundai Certified Pre-Owned vehicles equipped with XM. The
tie-up between Sirius XM and Hyundai will offer Hyundai customers
access to more than 170 channels of commercial-free music
programming, sports, news, traffic updates and weather information.
(See How Much Does Hyundai Partnership Add to Sirius XM Stock?)
Buybacks Could Support Shares
Aside from depending on the auto industry, buybacks could give
the stock some support. Sirius's CEO has indicated that Sirius
could put its free cash flow to use by buying shares or through
cash dividends - though we don't think this could happen before
2012. Many investors holding long position in the stock are
looking forward to Q2 2011 results in August when they hope
guidance on earnings and on SatRad 2.0, the next generation
satellite radio, will add a catalyst.
Our complete analysis of Sirius XM.