June 2011 auto sales are in and the good news is that the numbers are great news for Sirius XM Satellite Radio (NASDAQ:SIRI). The bad news is that sales were slightly weaker than a bad May, and the SAAR (Seasonally Adjusted Annualized Rate) came in at only 11.4 million. This means that not only were the raw numbers slightly weaker, but the SAAR dropped from 11.8 million as well. As Sirius XM investors should be well aware of by now, the auto sector news will impact SIRI.
For the quarter, nearly 3.3 million cars were sold. With a 60% penetration rate this would equate to nearly 2 million promotional subscribers being brought into the fold. This should enable the company to report good metrics across the board during their Q2 conference call which is anticipated to be held in early August.
The key thing that investors must understand is that not all of these promotional subscribers are counted in Sirius XM’s subscriber numbers. There are three distinct sub-categories of promotional subscribers. Leading subscribers are those that are counted at the time of production (green in the chart). Point-of-Sale subscribers are those counted at the time of sale (yellow in the chart), and Trailing subscribers are only counted if the elect to become self paying.
As you can see the Leading category is currently dominating the quarter. Over 40% of the cars sold during Q2 came from this category. What does this mean? Simply stated it means that the pool of Leading subscribers is bigger than normal, and the subscriber numbers will benefit from this dynamic. The contrast to that is the Trailing category, which is weaker than normal. This means that the pipeline of potential subscribers was not being filled at the rat is was in Q1 prior to the disaster in Japan. On the positive side, the Trailing category gets assistance from CPO programs and GM’s new used car deal with Sirius XM.
Looking at the auto sector from both a monthly and quarterly perspective, Sirius XM is in great shape. Over 1 million cars sold in June, and the average for the quarter was 1.1 million cars sold per month. Looking at the auto channel in the second half of the year things look fine as well. Ford recently stated that they anticipate sales to climb through the second half of the year. At the half way point of 2011 auto sales are already at 6.3 million. By simply doubling this number the year would bring sales in at 12.6 million. Most analysts are anticipating that 2011 sales will be near 13 million. The combination of Ford and GM alone could push 2011 sales above 13 million.
As always, being in the know on what is actually good news for Sirius XM may not mean that we see this positive news reflected in the stock price. What oft happens is that the overall news of the sector rules the day. While good news did come out for many brands, the weaker sales of several were a drag on the sector. If headlines this weak center on the low SAAR, Sirius XM could see a dip happen. If you trade the equity this may well present a buying opportunity prior to the typical pre-conference call run-up.
Position – Long Sirius XM, Long Ford