The March 11, 2011 earthquake and Tsunami that devastated Japan is something that will take the country years to recover from. Even today, over a month later, we are seeing headlines relating to the subject. As sad as these events are, we must look at the potential impacts that they could have here in the United States, and in particular as it relates to the auto sector.
The auto sector provides Sirius XM Satellite Radio (NASDAQ:SIRI) with the vast majority of their subscriber base. It is through the auto sector that most consumers first experience satellite radio with promotional trials ranging from 3 months to a year. Over the past few weeks we here at SiriusBuzz have kept readers informed on the potential impacts. We stated early on that the impacts would be small ripples readily absorbed by the company and that the effects would take at least six months to fully pan out. We still maintain that stance today.
Edmunds recently outlined the possibilities of impacts on U.S. auto sales, and satellite radio investors should welcome the results of their research. The best news is that early in the year Edmunds projected auto sales of about 12.9 million for the year and that estimate remains unchanged despite what happened in Japan. The auto publication did spell out three distinct scenarios. Their worst case has auto sales coming in at 12.2 million for 2011.
If you are a satellite radio investor, hearing 12.2 million as a worst case for auto sales is welcomed news. Sirius XM does very well when average auto sales are at 1 million per month or more. Sales in this range provide enough gross subscriber additions to keep the numbers positive across several key metrics that investors watch.
Edmunds broke down the potential impact on sales into three categories, Limited, Moderate, and Extended. They looked at the disaster, production rates, and the all important supply chain. With the Limited Impact case the SAAR was 12.9 million for 2011. The Moderate Impact lowers the SAAR to 12.6 million. The extended Impact points to a SAAR of 12.2 million. The article is well worth reading as it spells out possibilities that investors can track and keep tabs on over the coming months. The publication sees their Limited Impact case as the most probable. Currently Edmunds is projecting a SAAR of over 13 million for April.
The bottom line is that even in the worst case situation Sirius XM can prosper and sales will be strong enough to foster continued growth.
[via Edmunds Auto Observer]
Position - Long Sirius XM Radio