As most already know, December 2010 auto sales were very strong. At about the two thirds point of the month experts were projecting a great December. Those projections were spot on and those that listened were rewarded.
Being invested in satellite radio means keeping a close eye on the OEM channel. It is through new cars that most consumers first experience satellite radio.
Within the OEM channel there are three distinct groups of promotional subscribers (see chart). I call them leading, point of sale, and trailing.
The importance of this is that some subscriptions are counted at point of manufacture, some at point of sale, and others only after a trial period ends and the consumer elects to remain a subscriber. All of these impact metrics such as subscriber count, churn, Subscriber Aquisition Costs (SAC) revenue, deferred revenue, and Average Revenue Per User (ARPU) in differing ways.
Leading subscribers are counted at the time of manufacture, or more specifically the moment the OEM pays Sirius XM for a promotional subscription. The subscriptions are happening while the car is in transit to an auto dealer, or sitting in inventory on a dealer lot. For this reason the sales that are reported each month are not as important as the number of cars being manufactured. Point of Sale subscribers are counted when a consumer buys a car. Trailing subscribers are counted months after a car is sold and only if the consumer elects to become a self paying subscriber.
In a perfect world Sirius XM would see a balance between these three categories. That balance represents stability and keeps various metrics in check by not allowing the data to skew to heavily into one segment.
In December what we saw was the leading subscriber category carry a distinct advantage over the others. Nearly 36% of the cars sold came from this category. Because these cars were sold, they must be replaced with new inventory. Manufacturers have remained pretty consistent with production, but bumps up such as this mean that perhaps some acceleration is needed.
The Point of Sale category came in at about 34%. This is exactly where we would like to see this category sit, with about a third of the overall totals. The Trailing category brought up the rear, registering only 30% of the total.
What this means to investors is that as long as production ramps up for the Leading category, and with strong sales in the Point of sale category we could see a nice positive impact on Q4 subscriber numbers. The "penalty" comes later on when the under-performing Trailing subscribers finally tally in their participation into the subscriber pool.
Simply stated the results for December auto sales should help to deliver a great subscriber numbers for Sirius XM. As the auto channel continues to grow in sales volume Sirius XM will continue to benefit.
Position - Long Sirius XM Radio