The best thing about the used car segment for Sirius XM (NASDAQ:SIRI) is the number of cars on second and third owners that are already equipped with a satellite radio. This means that the company gets another opportunity to market its subscription service to another consumer without having to absorb the cost of installing a radio. The challenge has been being able to identify the second or even third owner in order to market to them.
A novel solution to that problem has been to do essentially what has been working all along for in the new car channel. Provide a sample of the service for free, then contact the consumer and sell them on the benefits of subscribing. Essentially, the model is a three-month promotional subscription that is free to the consumer.
Sirius XM announced today that the company has over 10,000 dealerships now participating in the used car initiative. It is estimated that there are about 18,000 dealerships that sell both new and used cars. This is the first line target for Sirius XM. With over 10,000 participating, the company is well on its way to rounding out the used car side of the business. This is a good sign because used cars with satellite radio will someday be outnumbering new cars in terms of promotional subscriptions. Sirius XM is getting ahead of the curve.
It Is A WIN-WIN-WIN
It is not often that something comes up that is a winner for everyone. The used car initiative happens to be a winner on three fronts. It is a winner for Sirius XM because it gives the company a second and third chance to make an already paid for satellite radio a money generating device again. It is a win for dealerships because they are always looking for something to make a car more attractive. Three free months of satellite radio is a great selling point that costs the dealership nothing. It is a win for consumers because they get a few months of satellite radio for free, and perhaps discover that it is a service they want.
As new car sales peak and then flatten out over the next couple of years, the street will be looking for what will drive future growth. The company will be able to point to millions of satellite radios in cars that will get a second and third chance at becoming active again.
But Wait There's More
Not only is Sirius XM latching onto a satellite radio equipped used car that is sold, they are now going after a satellite radio equipped used car that is getting serviced by a dealership. This summer the company is launching "Service Lane." Consumers that bring a car into a participating dealership can receive a 2-month promotional subscription to Sirius XM if they qualify. The brilliance in "Service Lane" is that it has the potential to extend beyond dealerships and perhaps to other car service providers such as Jiffy Lube. Essentially, the company is finding ways to get access to a consumer outside of a car buying transaction.
The news that the used car initiative has gone from 8,000 dealerships to 10,000 is not going to send the equity rocketing upward, but it will offer price stability and establish the foundation of future growth. With Sirius XM in the midst of share buybacks, there are some pretty compelling potential buying opportunities that are currently within reach of investors. Sirius XM is resting after a bullish run and is hovering between the 50-day and 100-day Exponential Moving Averages. That tends to be the bottom for this company. In my opinion $3.75 is a very realistic price target in 2013 with possible spikes to above $4.00. With the equity trading in the $3.20s, there is an attractive play here. Stay Tuned.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.