While auto sales for August had bad year over year comparisons because of 2009's Cash for Clunkers, the news for satellite radio, and the auto industry was all good even if some analysts did not report it that way. The month saw auto sales come in right at the magic 1 million mark and the SAAR was reported to be 11.5 million. This represents an average of above 1 million per month so far in the second quarter, and that is news that should be music to the ears of Sirius XM investors.
Debate about the strength of the auto recovery continues for auto sector analysts, but the analysts that follow satellite radio have now been pretty much clued in on the magic of the 1 million cars sold number. This means that as those that follow the sector continue to update their models, that there is another reason to be a bit bullish on Sirius XM.
There does still exist a hint of conservatism due to a very slight cut in manufacturing announced by Ford, and hinted at by others. Still, there is plenty of room for maintaining that 1 million per month pace. The distribution of manufactures as it relates to Sirius Xm is in a good place as well. Just over 36% of the cars sold in August provided subscriptions at the time of manufacture, with one third providing subscribers at point of sale, and the remaining third at post three month trial. The mix of "Leading", "Point of Sale", and "Trailing" is important because it keeps the flow of subscribers into the pool constant.
With September now here, consumers should begin to focus more on the 2011 model year, and sales could benefit as people that have been waiting may pull the trigger on a newer model year while the bargain hunters will be searching out dealer lots for 2010 leftovers. With inventories being more tight, the deal seekers may have to pull the trigger earlier or see all of the 2010's disappear.
Two months of 1 million cars sold will certainly deliver great metrics for Sirius XM Radio. It is the auto channel that is the primary conduit for subscribers, and subscribers that deliver revenue growth for Sirius XM. With a solid August in the books, the assumptions that Sirius XM would beat their guidance becomes more realistic. The question is how long it will take that fact to get into the share price.
Stay tuned to SiriusBuzz for an update on what type of deals auto makers have planned for September.
Position - Long Sirius XM Radio