Sirius Executive Concedes Connected Vehicle Business Falling Short Of Expectations

| About: Sirius XM (SIRI)
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Sirius CFO David Frear presented at a recent analyst conference.

Frear discussed the benefits of being in the CVS business.

Yet he acknowledged CVS was growing slower than had been expected.

Having written a number of articles about the Sirius XM Holdings (NASDAQ:SIRI) Connected Vehicle Services ("CVS") business, it was not particularly surprising to hear some of the information presented at the recent J.P. Morgan Global Technology, Media and Telecom Conference.

Sirius CFO David Frear acknowledged that the Connected Vehicle Services business is not meeting the company's initial revenue expectations. While he noted that certain aspects were positive from a strategic perspective, this may not be the business that some investors are expecting. Specifically, he stated:

...we think is a great strategic fit, especially from an engineering perspective and relationship with the car companies. It puts us at the center of a broader discussion about what's changing in connectivity in the cars...

Any time an acquisition is discussed as being a "strategic fit", rather than being accretive, investors should rein in their expectations. That doesn't mean that it isn't important for Sirius to be involved in a broader discussion about connectivity in cars. In fact, it's probably very important and should give the Sirius management insights into the future direction of entertainment systems being built into the dashboard. But being important and defending a marketing position have different implications than an acquisition made to maintain or accelerate growth.

Frear continued discussing the types of safety and security features to be offered, and added that the business is:

...going to have a faster growth rate than satellite radio, but a faster growth rate would mean maybe going from 2% of our revenues to 3 to 4% of our revenues... it's not like it's going to go from 2% to 30%. ...

...what we're finding is that we're going to get to exactly where we thought before, it's just going to take a little more time because the auto makers are a little slower in their roll-outs. So, what they thought they were going to do two years ago, they're still going to do it, they're just getting to it a couple of years later.

For the past two years I suspected that this business was not going to be some massive contributor to revenue. It was a business that was expected to generate $100 million in 2014 and double within three years. The numbers appeared to be falling short of initial expectations and could only be indirectly derived from the Average Revenue Per User, or ARPU, calculation in the 10Q and 10K reports. My most recent article on CVS was published in mid-March, and noted: is a business that has struggled to show any meaningful

growth. Has it been meeting the company's - and investors' -expectations?

This quarter the difference between total subscriber revenue of $998,775,000 and ARPU subscriber revenue of $973,347,000 and ARPU subscriber revenue is $25,428,000, the amount attributable to CVS. That brings the total for 2015 to $98,453,000. Here are the quarterly figures for the past two years:


Quarterly Connected Vehicle Services Subscriber Revenue ($000's)

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Current Quarter





YTD 2014




Current Quarter

Q1 2015

Q2 2015

Q3 2015 Q4 2015



25,170 25,428

YTD 2015




As a side note, it should be pointed out that the company owned the business for a bit less than the final two months of 2013. The difference between Subscriber Revenue and ARPU Subscriber Revenue for that partial year was just under $12 million. That number, nearly $6 million per month, is consistent with the $18.6 million generated in the first quarter of 2014.

Is any of this important? Perhaps not to the market, but it should be a wake-up call to many of those that have commented on the articles I have written about CVS on Seeking Alpha. There was a view by some that CVS is going to experience massive growth and become a major contributor to revenue. A few excerpts from the comments section on the above article are shown below:

... it will take them some time to figure out their CV business model but, based on where this market is moving and siri's huge position, it would be reasonable to conclude that eventually siri will be making billions off this business...

...Well, without accurate numbers any article you write involving Agero in my opinion is all a total guess. Without facts everything you state is meaningless. ...

...These numbers are projected to have explosive growth in the next 4-5 years, which is when one should expect to see tangible results. CAGR for 2015-2020 is projected to reach 45%. To have expected impressive results in 2013, 2014 or 2015 shows a severe lack in understanding of the budding industry....

The comments by Frear would seem to make it unlikely that this business will ever generate billions of dollars. As to whether it even becomes a "significant" revenue stream would depend on what one considers significant.

Frear also discussed the competition that Sirius faces in this business. He named OnStar (although he thought OnStar was not going to go beyond GM), Verizon Telematics, a European company called Wireless Car and Sirius as the major players. He also note that there were others that would "come and go" from time to time.

I will continue following the growth of the CVS business and update the figures each quarter, even if those figures aren't capturing 100% of the revenue. They will at least indicate the progress, if any, that Sirius is making towards getting to "3 or 4% of revenue".

Disclosure: I am/we are long JPM, SIRI, VZ.

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.

Additional disclosure: In addition to my long position in SIRI, I have $4 covered calls written against a portion of my position and I regularly trade blocks of Sirius. I also may sell $4.50 covered calls against my uncovered position at any time. Otherwise, I have no plans to trade any of the other companies discussed in this article over the next 72 hours.