I have been saying for quite some time that 1 million cars sold each month is the magic number for Sirius XM (NASDAQ:SIRI) to report positive metrics across the board. Today in an interview on Bloomberg Mel Karmazin himself confirmed that notion by stating, "...the model (OEM business model) works well with sales at 11 million...it works really well at 12 million."
The OEM channel is where Sirius XM garners the majority of their subscribers, and is often where consumers are introduced to the quantity and quality of content Sirius XM has to offer. The has satellite radio installed in approximately 60% of the vehicles sold, and almost 47% of consumers exposed to the service elect to become self paying subscribers after their promotional period ends.
For Sirius XM the OEM channel is where the bulk of their growth will come from. While the mainstream media is focused on when OEM sales will normalize to levels of about 15 million cars sold per year, Sirius XM has found a great mix to make their own model profitable on sales of just 11 million per year. When July numbers for auto sales are announced over the next two days we will see that the average for the last four months will be in that magic range of 1 million per month.
The underlying secret here is that Sirius XM can prosper even in these tough economic times. It is often commented that Sirius XM relies heavily on the OEM channel and their performance is tied to it. While this is true, what savvy investors already know is that Sirius XM can OUTPERFORM even when the OEM channel is under-performing. Sirius XM is due to report earnings Wednesday August 4, 2010. One key component that Sirius XM will be reporting on is how their business model works in the current OEM environment.
The bottom line is even with what may be termed as as a slow recovery for car sales, and even with worries about second half sales being forecast as slower than hoped for, Sirius XM is already in the drivers seat and entering the fast lane for some numbers that should work "REALLY WELL" for Sirius XM investors in the quarters ahead.
Position - Long Sirius XM