The August auto sales numbers came in just shy of 1.5 million units. That is a massive number that we have not seen in years, and the implications bode well for SiriusXM. There are several things to consider here:
- SiriusXM can report great gross additions on new car sales of just 1.1 million per month
- SiriusXM is very stable financially, and can easily absorb the costs of ramped up auto growth. The used car initiative is getting to be very effective in keeping the SAC average at reasonable levels, even when there are bold moves in installations.
- The pace of new car sales is developing earlier than many analysts anticipated. We can easily see a base projection of 16.5 million in 2014 developing.
- New car sales may well see peak levels in 2015. This gives us another 18 to 24 months of auto sales growth to consider. Auto sales growth should translate to growth at SiriusXM
- In 2014 we should see 11 million satellite radio equipped cars enter the market. 2015 should deliver a similar number. This is ahead of the pace that SiriusXM outlined for reaching the 100 million satellite radio equipped cars milestone.
The biggest things that investors need to be considering now is the subscriber number for Q3 and how the new GM deal will impact the subscriber number in Q4. At first blush, based on August auto sales, I see no way way that the company can maintain 2013 subscriber guidance in its current state. They will need to adjust the number upward. That is a good thing. A big subscriber number in Q3 can help mitigate the impacts of what will be perceived as a weak number in Q4.
Under the current GM deal, each and every satellite radio equipped car that sells is counted as a subscriber as soon as it is sold. That is 100%. If we assume that Q3 will have GM sales at 750,000 units with 70% being SiriusXM equipped, the result would be 525,000 counted subscribers in the quarter. In Q4, those same numbers would generate 0 subscribers.
The new GM deal gives consumers a three month trial, but these trials are no longer counted. The only way they are counted is if they become self-paying subscribers AFTER the trial. The full negative impact of this shift will be felt in Q4 of this year. The positive impacts will be substantial as well, and will blend in over the subsequent 3 or 4 quarters and beyond.
Savvy investors need to understand this dynamic now. Depending on how the company presents and frames this issue, it can carry a minimal impact on stock price, or a pretty big impact. The key is seeing how the company addresses this shift at the next call, as well as where they sit with guidance. As a SiriusBuzz Premium member, you know what to look for.
The sales data shows us that the shift of GM will mean that the biggest supply of satellite radio equipped cars will be in the trailing category. The second largest supply will be the leading category. This will be a shift from the current state of subscriber metrics. I will go into greater detail as Q3 comes to a close and Q4 starts.