September auto sales are now in the books and the news is good for Sirius XM Radio. The quarter saw just over 3 million cars sold, and as we know, 1 million in sales per month delivers across the board positive metrics for Sirius XM Radio. In Q2, when similar auto sales numbers were delivered , the company announced 583,000 net additions to the subscriber roles. Q3 should deliver a similar number.
As someone who follows the OEM channel numbers closely, I have been able to deliver a unique look at the subscriber picture as it relates to Sirius XM. I take the extra step to break down auto sales into three distinct categories, LEADING, POINT OF SALE, and TRAILING. The importance of this extra step is that not all car sales create subscribers in the same way.When sales are balanced between the three categories the subscriber line trends more smoothly. When the categories are out of balance, an impact on the metrics can happen.
Leading OEMs deliver subscribers soon after the car is manufactured. This type of subscriber is added to the roles prior to a vehicle sale. This helps metrics like fully loaded churn, but add to deferred revenue (a liability). In September the sales mix delivered by the LEADING category swung upward. This means that there is potential for a boost in the sub numbers, as well as in deferred revenue. It will also help the churn metric.
Point of sale subscribers in September were actually the lowest of the three categories. Point of Sale subscribers happen at the time the car is sold. They help fully loaded churn during the promotional period.
The Trailing category are promotional subscribers that are not counted at all. They impact SAC because the company has invested in a radio that is not being counted as a subscriber. They never become churn, because the only way they ever become subscribers is if the consumer elects to become self paying after the promotional period.
In September, there was an above normal boost from the Leading category. Thus, the subscriber roles will see a positive impact. Sac cost are divided into a larger number as well, meaning that the SAC per gross add number will remain stable. The gross additions are high, so likely the SAC line item will carry costs similar to last quarter. One distinct possibility is that the penetration may rise slightly due to the new model year. The bottom line is that we should hear a great subscriber number when the company announces.
What investors should watch for is the release of these numbers, as it will be yet another confirmation that Sirius XM is on a path to better and better financial metrics that investors can have confidence in. There is potentially a few big news items in the next for weeks. Sub numbers, Stern, and Q3. All of these will be positives for the company. The Bulls are now gaining momentum, and these news items will let the bulls continue to run.
Position - Long Sirius XM Radio