Sirius XM ( SIRI ) reported its Q2 earnings recently that showed the company is increasing its penetration of overall vehicle sales despite continued softness in the economy. This is helping add subscribers despite an uncertain outlook for the auto market. The satellite radio company's success largely hinges on its ability to get installed in more new and pre-owned vehicles through ties with automobile makers such as Ford ( F ), GM ( GM ) and Toyota ( TM ) allowing Sirius to grow subscribers even if auto sales slump.
Our price estimate for Sirius XM stands at just about $2.10 implying a near 10% premium to the market price.
65% of New Vehicles Install Sirius
The company stated that while light vehicle sales in the U.S. grew by 7% in Q2 compared to the same period last year, the company's total gross additions increased by 8%. However, this means that pure automotive subscriber gross additions must have increased by an even higher amount since retail subscribers are declining. The company has stated that now about 65% of the new vehicles manufactured for sale in the U.S. install Sirius XM radio.
In addition to the above, increased penetration in pre-owned vehicles helped. We previously published an article mentioning Sirius XM's recent deals with Hyundai and GM ( GM ) to offer 3-month SiriusXM subscription on pre-owned vehicles (see Sirius XM Earnings Preview: What We Are Watching). This factor also played a role in healthy subscriber additions.
This earnings report is an encouraging indication for the company given the uncertainty around recovery of the economy. Even though there is chance that auto sales may not pick up as expected previously, Sirius XM will likely continue its growth by increasing penetration in both new and pre-owned vehicles.