The 2012 auto sales continue to remain strong in the U.S., with August sales growth amounting to 20% over the same period in 2011.  After a relatively weak July, August sales are a welcome respite for the automakers. This not only positively impacts the automobile manufacturers but also certain companies in the media sector such as Sirius XM (NASDAQ:SIRI), Disney (NYSE:DIS) and others. While Disney and other media companies will continue to benefit from strong ad pricing driven by strong auto sales, Sirius XM will benefit from higher net automotive subscriber adds.
Auto Sales Growth
According to the forecast data complied by Edmunds, an auto consultant and consumer website, the total auto sales in the U.S. are expected to reach 14.4 million in 2012.  This will be an increase of 12.5% over 2011 sales and bodes well for the car makers. Although rebates dropped in August by 4.7% compared to the same period in 2011, there were more financing and leasing deals available, leading to growth in vehicle sales.  Edmunds expects the growth to continue in 2013 as well, however, that will come down substantially compared to 2011. The current growth rate is high due to the sales decline in the recessionary period, and a bounce-back warrants a high growth rate.
Impact On Sirius XM & Disney
Sirius XM’s dependence on auto sales is quite high. The company’s subscriber growth comes primarily from in-vehicle installations. This will continue to be the focus area for Sirius XM since a substantially high amount of overall radio listening in the U.S. happens while driving. Last quarter, Sirius XM raised its subscriber guidance for 2012 due to better than expected auto sales and their continued momentum. You can modify our forecast below to see how a change in automotive subscribers can impact our price estimate for Sirius XM’s stock.
Additionally, the growth in auto sales guarantees continued growth in Disney’s advertising revenues, especially from ESPN. ESPN is the company’s flagship channel, accounting for 45% of its total value. About 40% of ESPN’s revenue comes from advertisements and, given that the channel’s target audience is men, it is one of the favorite destinations for advertising for auto companies. Not only will this benefit ESPN, but will also provide broad-level support for the advertising industry in the U.S. This will benefit other media houses as well.
Our price estimate for Sirius XM stands at $2.50, implying a discount of less than 5% to the market price.Notes:
- UPDATE 5-U.S. auto sales post best August in five years, Reuters, Sept 5 2012 [↩] [↩]
- Navigating fall auto sales, Market Watch, Sept 21 2012 [↩]