I find it ironic that a Wall Street Analyst is the only job in the world in which, when they are wrong in their analysis puts the company in a bad light rather than themselves. Now that most Wall Street Analysts have dropped coverage of Sirius XM for the time being, I thought I'd take a shot at doing some projecting myself. I'm going to try my hand at a simplified version that will not require a degree in accounting or economics to understand.
The OEM numbers should be the easiest to estimate. New car sales for Q4 2008 totaled 2,481,069 units, compared to 3,800,000 in 2007. We can safely assume a modest 50% installation rate which tells us that 1,240,534 cars were sold in the quarter equipped with Satellite Radio. Although most believe the subscriber conversion rate on these units to be approximately 50%, the general economy should weaken this number a bit. Last quarter came in at 47%. My best estimate is that 46% signed up for the service in the latest completed quarter which would bring OEM subs in at a conservative 570,646 new subscribers.
130,037 subscribers will have been lost if churn remains at a historical constant of 1.7%. This would bring the total end of year subscribers to 19,361,520. If we add retail and multiple subscription packages such as the highly cross-promoted "Best Of" packages, the company should easily reach its year end goal of 19,500,000 subscribers.
Having made that bold assumption, subscriber revenue should come in at over 600 million dollars, with advertising and equipment revenue bringing total revenue even higher.
Of course, the top line numbers have always been good. The problem facing Satellite Radio has always been controlling its costs. Mel Karmazin has done a great job at Sirius in reducing costs which nearly brought the company to a break even point on its own. It is impossible to estimate the savings that may or may not have been realized in Q4 due to a lack of history since the merger. I firmly expect that the company has greatly reduced its costs for the quarter, yet actions such as these always carry a cost associated with them which may result in a near term offset of any gains that were realized.
Another question remains in whether there will be additional goodwill impairment charges reported. The company did take a charge in Q3, so there is no requirement for them to do so again in Q4.
All of these factor into whether Sirius XM will meet, beat, or miss the -.06 to -.08 range for the quarter, with the consensus being -.07. For each of the last 2 years, Sirius had surprised to the upside in Q4 by .02. With this in mind, I am projecting another upside surprise of -.05, as earnings are expected to be reported soon.
Position: Long Sirius XM