With its multi-million dollar acquisition of Agero’s telematics unit last year, satellite radio provider Sirius XM poised itself to dominate the U.S market for ‘connected cars.’ Now, according to an evaluation by investment bank Evercore Partners, SiriusXM could reach 50% of a $30 billion telematics market within a decade, allowing it to push new telematics-based media services and draw millions of more listeners to its satellite radio channels. Evercore upgraded SiriusXM (SIRI) shares to an ‘overweight’ rating on Friday, indicating that stock prices could soar to 85 cents $4.50 a share within the next year to 18 months.
Evercore analysts cited SiriusXM’s early initiative in preparing for car connectivity in the upgrade. Telematics systems could reach 250 million cars in the United States, and 750 million across the world by 2023 and SiriusXM has been quick to position itself as a market leader. SiriusXM gained access to 40% of the telematics relationships in the U.S. auto market with its $530-million purchase of Agero’s telematics unit, finalised in November.
The acquisition “positioned [SiriusXM] to accelerate development of our connected vehicle services platform, supporting the rapidly expanding field of connected vehicle services and strengthening our ability to provide services over satellite and mobile networks,” CEO Jim Meyer said in November.
That purchase “puts Sirius in a potential leadership position; ahead of Verizon Telematics and Sprint Velocity, which both have OEM relationships representing ~10% of US auto sales,” Evercore noted. SiriusXM will now be providing telematics services to Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan, and Toyota.
If it maintains those relationships, SiriusXM is projected to generate $700 million in telematics revenue by 2018 and $3.1 billion by 2025. By 2025, telematics profits before interest taxes depreciation and amortisation (EBITDA) could reach $1.1 billion–a third of the company’s total EBITDA, Evercore predicted.
“As a telematics partner, Sirius might be able to develop advantages in its core radio business through two-way services and improved listener measurement, leading to a better product, growth in ad sales, and better programming decision making,” Evercore said.
SiriusXM’s movements in the telematics market indicate a shift in direction of connected care technology, from systems geared toward increasing safety and determining location to those providing entertainment. SiriusXM’s intervention in the market and a growing number of cars with 4G wireless connectivity could transform telematics technology from an often passive passenger–the insurance black box recording movements or an emergency system deployed only in the event of an accident–to an active rider, providing location-specific media and wireless streaming infotainment to vehicle occupants.