How Much Does Hyundai Partnership Add to Sirius XM Stock?
Sirius XM Radio (NASDAQ:SIRI) recently announced its partnership with Hyundai (SEO:005380) Motor America wherein consumers across the United States will receive a 3-month introductory subscription to XM when they purchase Hyundai Certified Pre-Owned vehicles equipped with XM. We believe that this will help Sirius expand its automotive subscriber base and add significant upside to its stock value. Sirius is a satellite radio company in United States and is mainly distributed through automakers and retail locations as well as through Sirius’ own website. Sirius XM has ties with major automobile manufacturers such as Ford (NYSE:F), GM (NYSE:GM) and Toyota (NYSE:TM), which help drive its presence in the U.S. automobile space.
Sirius’ closest competitors include Cumulus Media Inc. (NASDAQ:CMLS) (America’s second largest operator of radio stations) and Westwood One Inc. (NASDAQ:WWON) (the largest provider of audio content in America), as well as traditional AM/FM radio and internet radio offerings from Pandora and Rhapsody.
We currently have a price estimate of $2.00 for Sirius XM Radio’s stock, which implies a discount to market price.
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Sirius XM and Hyundai Partnership
The tie-up between Sirius XM and Hyundai will offer Hyundai customers access to more than 170 channels of commercial-free music programming, sports, news, traffic updates and weather information. Hyundai is offering a 3-month introductory subscription to XM with the purchase of new Hyundai vehicles sold in the United States and factory equipped with XM.
Over 12% Stock Value Upside from Automotive Subscriber Base Expansion
We presently estimate that Sirius XM automotive subscribers will increase from roughly 13 million in 2010 to 25 million by the end of our forecast period. The addition of new Hyundai customers could accelerate the expansion of this subscriber base.
In the U.S., Hyundai sold over 11.5 million vehicles in 2010 and had a market share of 4.6%. [1] In January – April 2011, Hyundai sold over 4 million vehicles in the U.S. and increased its 2011 year-to-date market share to 4.8%. [2]
Consider the scenario where Hyundai sales in 2011 are proportional to their year-to-date 2011 sales, and thereafter grow conservatively by 5% every year. Further, assume that 20% of Hyundai customers decide to subscribe to Sirius XM after the trial period. In this scenario, total automotive subscribers of Sirius XM could increase to 28.4 million by the end of our forecast horizon. This would increase the implied stock value of Sirius to $2.25, over 12% upside from our present stock price estimate.
You can drag the trend line in the interactive chart above to test this scenario, and others, and see the potential impact on Sirius XM Radio’s stock.
Notes:
- Hyundai: 2010 US Retail Sales [↩]
- Hyundai: 2011 US Retail Sales [↩]