By Brandon Matthews
There have been a few statements recently in Satellite Radio circles that have peaked my interest. The first came during Sirius XM Radio’s (Nasdaq:SIRI) fourth quarter earnings call held two weeks ago, in which Sirius XM CEO Mel Karmazin informed analysts that the used car market will be the new retail market going forward.
Still another tidbit of information came again from Karmazin in a letter published last week, which includes a statement that there will be 90 million Satellite Radio equipped vehicles on the road by 2015. The last came from BGB Securities Analyst, Murray Arenson, whom just this week highlighted the importance of Sirius XM’s potential in the used car market. The analyst stated that there are only 27 million vehicles factory installed with Satellite Radio on the road today.
Even if you are not smarter than a fifth grader, these are pretty easy numbers to work with. There will be over 60 million more potential subscribers on the road in five years than there are today. When we consider that Sirius XM has 19 million subscribers today out of 27 million, which equates to approximately 2/3 of the current market, we can forecast a five year subscriber goal of about 60 million. This may seem a bit outlandish to some, when considering that it has taken over seven years to reach under 20 million, while witnessing a slowdown in subscriber growth. Am I nuts? Perhaps.
There are certainly portable devices and home units as well, not to mention smart phone applications, yet there is an anticipated shift projected that suggests factory penetration rates will lessen the need for such units over time. It is my intent to be vague and use a wide brush with broad strokes here as example of Satellite Radio’s potential.
The answer I believe lies in the recently tapped used car market. Sirius XM only began its Certified Preowned Programs in earnest in 2009, with announcements that it had signed agreements with nearly all of its OEM partners. Since that time, I have sought to answer the question: How big is the used car market? Until now, I have not seen any data on used car sales. That has changed, and the numbers are astonishing.
According to DalePollack.com, the NADA reported used car sales as follows:
The numbers are astonishing, in that each segment of the used car market outsold the new car market in 2008 and 2009. Taken as a whole, they dwarf the OEM numbers that are so important to so many when forecasting Sirius XM Radio’s growth. This confirms that a rapid future acceleration to Sirius XM’s subscriber rolls is plausible. With the numbers now known, its easy to see why the company is so focused on bringing this market segment to life. There are other benefits as well, highlighted by a significant drop in Subscriber Acquisition Costs, higher ARPU and increased cash flow generation.
As I review the numbers, I recall Karmazin’s statement during a conference call in 2009, in which he suggested that the company will seek to penetrate the private and independent used car market, potentially with deals with insurance carriers using a VIN number system.
The combined potential of the used car market, with a recovery in the new car market, can provide the fuel for accelerated subscriber growth going forward. The key of course will be execution.
Position: Long SIRI
Great Article – combined used and new car markets and the perfect recipe of pent up demand with a vague possibility of another cash for clunkers spells GREAT FUTURE for SatRad.
And to think Brandon i was pushing this for 2 years(the used car segment) and it was poo-pooed. Everyday that goes by more and more cars are traded in. Sat.ready used for Sat. ready new. The numbers are exponential. The next big thing will be internet access at a reasonable price, World-Wide.
Brandon,
While you are aware that I have been applauding your articles for a long time, I must say that this piece may serve as the article that has brought the biggest smile to my face!
I cannot shout it loud enough…I absolutely love the progress that Sirius XM has made in the past year!
All that I can say is “Move Over Traditional Censored, Chock-Full Of Commercials and Theivery Radio – Uncensored & Commercial-Free Is The Future!”
Thank you for all that you do to get these articles out to the public!
Ok Mr Matthews,
Explain this to me. You state in the article
we can forecast a five year subscriber goal of about 60 million.
Ive done some quick math. (not my strongest subject i admit)
SiriusXm has roughly 19 million subs at this point. They are hoping to see 500k subs this year (2010)
Now, If we see an increase of 250k per year up until 2015 including the 2010 year.
And we add the 19 million that they currently have thats somewhere in the range of 24,750,000 subs by the year 2015.
I understand the importance of your article and im not bashing by no stretch here but 60 million subs?
Im saying around 30 million subs by 2015, 35 million on the high side.
Keep in mind that the used car market has not been tapped. It is going to be. Mel stated 90 million cars on the road in 2015, not me…
Even with self pay the number of subs suggested in 5 years from a mathematical standpoint is 45 million.
Do not discount the accelerated growth potential of the used car market..
I think you forgot about churn, which increases not in %, but in numbers as the net sub count goes higher. This is only possible if they cut there subscription price down to 6.99 across the board.
30 – 35 million would make us all alot of $.
The 60 million number may definitely be on the high side, but Brandon did say he was painting [very] broad strokes. My own calculation is in the range of 44 million subs by 2015, of which about 13 million is from used car sales (i.e 31 million just from the current model of just new cars adding subs). This is with a target penetration rate of 25% into the used car market ramping up from almost zero today, and an all-in churn rate of 2.5%. We get 46% take rate of 63% penetration so that’s roughly 29% of all new cars now (higher in the future with increasing penetration rates), so I figure 25% of used cars is a good ultimate penetration rate. Mel says 90 million satrad equipped cars by 2015; Murray Arenson says 70 million cars. My estimate is 85 million using a 70% penetration rate by 2015, so it’s closer to Mel’s. Btw, I think Mel’s projection of 500K new subs for 2010 is way conservative. With a 11.5 million SAAR I don’t see how it can be less than double that number!
Good article. I do not believe your assessment is outlandish. This is a great product/service. Heck I remember when we started installing radios on bikes – it boomed – If it rolls it is ours. The others cannot compete with a satellite they are late entry “metoo’s” too late. This is the right place at the right time for individuals to play – just be patient it will happen.
Brandon, As always, nice work – neatly summarizes the potential of this company. Here’s and idea, why not send this out to Stern and see if he’ll read it on the air as he did with your FCC piece? Even if he doesn’t, at the very least after reading this he’ll have to consider the number of people he could potentially be reaching within 5 years as he considers his opitons at contract renewal.
Anyone that knows Brandon’s writing style knows he’s a bit of a sensationalist. However, Even if there is 35 million subscribers, and profit margin increses significantly because of it, we are all in good shape. If we could escrow 25k a peice I would make a bet we are not at 45 million subscribers by that point. Any takers Brandon??? Thanks for all the work though I always enjoy your effort.
i just read that the remaining XM debt due in 2013 has merger covenants in place that preclude them from being pre-paid. anyone know any better?
yes…they are callable in April at 104.813
April 2010, 2011 ?
2010…
April 3rd, 2010.
Actually, the first mention of a “5 year plan” was last year shortly after the merger approval. Mel mentioned it several times while he was involved in the “toxic” financing to consolidate the merger. It was Mel and my faith that caused me to average down at .14 per share, and, NOT sell at .5 ps.
I’ll be break even at 1.25 ps. I like the way SiriusXM has risen back in “phoenix” fashion. Now that Mel has added the
“used car” angle to the “5 yr plan”, I’ll just call it his 6 YEAR PLAN started last year. Keep executing Mel!! GLTA.
I love the thought of getting up to 40-50 million subs, but I’d be extremely happy if by 2015, we’re at 28 million subs (10 million more than the (roughly) “break even point of 18 million). As Mel stated in the Q3 cc, basically, anything over 18 million subs equates to about 10/month straight to the bottom line. I’d HAPPILY take 100 million/month to the bottom line (or 1.2 billion/year). Throw in the savings of no sat cost from 2014 (I believe) to 2018 (another massive savings) and we’d be looking at approx 1.5 billion/year in profit!
Like all, it is fun to dream/theorize about the future; right now, however, I’m just hoping we crush the 500k estimate (which should be easily achieved) that Mel has set out.
Great article, Brandon!
Thanks!
Would the penetration rate for Used Cars be the same as New? I would expect it to be lower, as I would think people purchasing used cars have less disposable income than more wealthy new car customers.
With that said, I beleive the opportunity for significant growth is real in the next few years! I’ve always felt that Sirius XM needed to reach critical mass (exposure) before they would see real growth.
It sounds like that’s about to happen!
according to Jessica Caldwell, used car buyers tend to get more bells and whistles
60 millions subs doesn’t seem realistic – there is a cap, in my opinion, on the pool of potential subscribers here and it’s driven by income levels. I think there’s a sliding scale (declining) on new subscribers as the amount of sat radios in the world increase. Also, a great many of the used car buyers over the next 5 years will already be subscribers. That being said, it is certainly positive that there is and will continue to be more vehicles in the universe with sat radio….and that may realistically put us at 25-30 million in 5 years. I base this on nothing and I’m an idiot a great deal of the time..
Good point about the sliding scale, it’s very possible. But, along with more subscribers will come a greater acceptance of SIRIUS. Where’s the sliding scale for cable/sat TV? Income barely matters there….
SXMinvestor,,, I’m not sure if churn will make much difference… churn is and has been an issue since the beginning. But, the bottom line is, there’s 27 mil cars with SAT and 19 mil subs……you can throw churn, OEM, used, and anything else at it,,, those numbers do not change 27 vs. 19…. period! the question is 90 vs. ??….
Great read Brandon, optimistic and grounded.
I dont see a sliding scale I see a “mushroom” scale. Siri will catch on and blow up and be as common as toothpaste well unless you live in KY. Just a joke!
Atleast Mel’s 5 year plan didn’t include a stint at Hooter’s .
Great work Brandon, Like any new technology it either takes off or fades into the sunset. I know this will take off the product is superior. Remember back when PC’s first came out, How many years did it take before they became mainstream? My first PC was a TRS-80 COCO I was 14 at the time. It wasnt until I was in my 30′s that PC’s were mainstream. Things move a helluva lot quicker now it’s not going to take 20 years for this technology to become mainstream.
Just announced that $800mil offer for 2015. (5:31)
I remember reading a year or two ago about a patent that is held by the XM side of Sirius on software that supposedly every Sat Radio that is out there can accept and that it allows for the transmission of two signals simultaneously . One a premium no commercial signal for subscribers and one with commercials for those that choose not to subscribe .
Since reading about that I have always had in the back of my mind that one of Sirius long term objectives was to get enough radios out on the road where they could make money as traditional radio does and then have their subscription service as well .
I wonder at the point that they have 90 million Sirius equipped vehicles on the road if that becomes a reality ?
If this is the plan that would be the final nail in traditional radios coffin IMO !
I hope this helps our SP next week,,,
http://money.cnn.com/news/newsfeeds/articles/globenewswire/186553.htm
;-}
“5 year plan? what is it? don’t die?”
-Adam Sandler
Good thought into this article. I sure hope you are correct, though I am still a little skeptical about how much of the used market they will get, I do think they growth of portable device market is being underestimated.