By Brandon Matthews
The XM SkyDock has begun to receive the accolades that I have been reporting would come. Rave reviews of the revolutionary new satellite radio offering are beginning to pour in, as more and more Apple (NASDAQ:AAPL) iPhone and iPod Touch owners are coming to the realization that yes……There’s an app for that!
Out of the box, and with a basic XM monthly subscription the SkyDock brings iPhone and iPod Touch owners everything XM offers including CNBC, Major League Baseball, Oprah Winfrey, Opie and Anthony, Mad Dog Radio and all the rest of the exclusive XM lineup including its extensive commercial free music offerings to Apple Devices. Adding the “Best of Sirius” package will add the NFL, Martha Stewart, Howard Stern and lots more! A new marketing campaign dubbed Rock ‘N’ Rewards offers a cash reward for new subscribers of up to $100.00 which will actually pay for the upgrade, although the cash reward can be used for any purpose.
From a consumer standpoint, this is big news. From an investment standpoint, it’s even bigger. It has been no secret that Sirius XM Radio (NASDAQ:SIRI) relied heavily on new car sales for far too long. Looking at the numbers that Apple reported just two days ago, it is clear that this new market represents a growth opportunity that dwarfs both the new and preowned auto markets.
Consider that out of 10 million new cars sold annually, approximately half of them are not equipped with Satellite Radio, and the “take rate” of those that are equipped stands at less than 50%. As 100% penetration comes at a snail’s pace through all the major auto manufacturers, subscriber growth will keep a similar pace.
Every new car radio carries with it a cost to Sirius XM whether or not the service is ever subscribed to. There are also issues of revenue share agreements with the automakers that cut into Sirius XM’s earnings and profit potential. All in all, new car sales have created growth and awareness of satellite radio, but that growth, as 2009 has demonstrated, has slowed as auto sales declined sharply.
According to Apple’s press release, the company sold 10.2 million iPods and 7.4 million iPhones in Q3. No number was given regarding iPod Touch devices, but the picture is clear. The company during its press conference also admitted to pent up demand heading into Q4 for the iPhone, due to supply problems that Apple has just recently begun to overcome.
With nearly 30 million iPhones alone being sold annually, the new car sales annual rate of 9-10 million vehicles can potentially be rendered a second tier market for Sirius XM Radio. This quarter may prove to be a historic quarter for Sirius XM Radio, if it can capitalize on this new market of Apple consumers. It may just be as simple as letting Apple consumers know that — “Yes…There’s an app for that!”
Position: Long SIRI