Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is SpaceX now a Threat to Sirius XM?

The biggest threat to Sirius XM’s (NASDAQ: SIRI) might be Elon Musk’s private rocket combine SpaceX.

SpaceX plans to launch two satellites that will test its orbital wireless internet service Starlink on 21 February 2018, Gizmodo reported. Starlink would be a direct threat to Sirius because it might be able to transit internet directly to vehicles.

One of the ground stations for testing the Starlink signals will be at Tesla Motors (NASDAQ: TSLA) headquarters in Freemont, California, Business Insider reported. That sounds as if Musk wants to develop his own version of Sirius to drivers. Tesla already sells internet-connected vehicles.

There is a big reason for Musk to implement such a scheme: revenue. Tesla needs all the money it can get, the electric car maker reported a loss of -$675.35 million and a negative profit margin of -20.54% on 31, December 2017. Subscriptions from something like Sirius would add some much-needed cash to Tesla’s bank accounts.

The business plan for Starlink is to sell internet and other telecom services to finance Musk’s various space ventures such as his Mars colony. To that end, he plans to launch 11,925 small satellites and sell small devices that will allow anybody on Earth to access his internet service.

Logically such devices can be easily built into cars. Musk wants to deploy three “mobile test vans” to receive for Starlink, Business Insider reported.

Is Sirius XM making Money?

These plans raise two very interesting questions: would Starlink be a threat to Sirius XM and can it make money? Some potential answers to those questions can be provided by a glimpse at Sirius’s financial numbers.

Sirius’s business plan is a great deal like Starlink’s. It makes money by charging subscriptions for audio entertainment beamed to drivers and others on Earth. Sirius XM’s financial numbers (those for December 31, 2017) seem to validate Musk’s idea.

Sirius is making money it generated a gross profit of $2.824 billion, an operating income of $1.640 billion, and a net income of $648 million off of revenues of $5.425 billion during 4th Quarter 2017, Yahoo! Finance data indicates. That seems to justify Musk’s idea because Sirius only sells its services to customers in one country the United States.

Sirius’s results indicate that selling digital entertainment via satellite can generate profit and float. Sirius XM managed to generate those revenues from 32.74 million subscribers in the United States, Statista reported.

Should Tesla and SpaceX emulate Sirius?

That demonstrates it is possible to create a mass audience for digital wireless entertainment. Sirius’s current business model of 150 channels offering a wide variety of music, comedy, commentary, and other entrainments for a base subscription of $5 to $8.33 a month would be a good model for Starlink to emulate.

A smart move for Tesla or SpaceX might be to buy Sirius XM. That would give Musk a readymade subscriber base and a large cache of programming he can rollout globally. It would also give the two companies access to all the technical expertise in beaming digital signals, Sirius XM has accumulated.

Sirius would be a little pricey, it had a market cap of $27.67 billion on 121February 2018; although, the stock price was low at $6.16 on 21 February 2018. A big advantage that Sirius would give Tesla and SpaceX is a readymade stream of revenue from the subscribers.

Would SpaceX’s Starlink Make Money?

Offering digital radio would enable Musk to reach vast numbers of listeners developing nations. It might enable him to develop other sources of revenue such as advertising, although digital audio advertising is a tricky business.

Pandora Media (NYSE: P) which relies on sales of digital audio ads is still losing money. Pandora reported an operating loss of -$318.759 million for the last available quarter 4th Quarter 2016.

Starlink would be able to tap other sources of income such as subscriptions for internet service and streaming video. A potentially lucrative sideline for it would be selling something like Netflix (NASDAQ: NFLX) to people around the world. Netflix reported a net income of $558.929 million, a gross profit of $4.033 billion, and revenues of $11.693 billion on 31 December 2017.

Can Starlink make Money through the Internet of Things or the Blockchain?

Other uses for Starlink include commercial internets, the Internet of Things (IoT) and delivery of blockchain-based services. One potential revenue stream for Starlink is demonstrated by a company called Aitheon.

Aitheon has demonstrated robots and driverless vehicles that can be piloted through the blockchain. The company also has plans for the delivery of artificial intelligence (AI) based business solutions and digital robots (Digibots) that can solve problems for businesses.

A logical use for Starlink would be to transmit Aitheon’s blockchain signals to autonomous vehicles, robots, or automated machines in remote locations. An example of this might be an oil rig, or an autonomous bulldozer working at a mine.

Potential uses for Starlink, IOT, and Blockchain

Starlink certainly has the potential to solve one of the major problems facing the Internet of Things (IoT) connecting with devices with no direct internet connections. Industries that might utilize it include oil and gas, shipping, railroads, trucking, mining, construction, news gathering, tourism, aircraft, and agriculture.

That might provide another source of revenue that Starlink can tap; particularly if it is integrated with the blockchain. There are already plans for networks of blockchain connected flying cars and blockchain-based air traffic control systems.

Blockchain would certainly provide the security for such services. Other potential moneymakers for Starlink in the blockchain would be global financing services solutions, Dropbox type data storage solutions, and encrypted messaging services.

It looks as if Musk might have hit upon a trillion-dollar idea here but it is several years away. Until then, Sirius XM is a pretty good low-priced value investment. Only time will tell if its business model can be rolled out worldwide by SpaceX through Starlink.