Q1 Auto Sales Expected to be Flat Year Over Year
This may come as a surprise to some, but auto sales seem to have hit a bit of a rough spot so far in 2014. It is anticipated that Q1 auto sales will total about 3.677 million in 2014 vs 3.685 million for the same period a year ago. Worse yet, incentive spending is increasing. January incentive spending was down year over year by about 3%. In February incentive spending was up about 1% year over year. In March it is anticipated that incentive spending will be up 8%. Essentially, we are seeming the same number of cars sell, but auto companies spending more money to get the same result.
For SiriusXM this presents an interesting dynamic. If the new car auto sector is not growing, the only way to show growth is through added penetration (installing more radios), or increased conversion (getting people to keep the service). Penetration has seen a small uptick, but conversion is seeing a downtick. Compounding the issue is the new GM deal, which only counts subscribers if they become self-paying. A silver lining is the used car and pre-owned market. As each year passes, the number of potential satellite radio equipped cars increases.
In the very near term this could make for some not-so-pretty subscriber numbers in Q1. Just 6 months ago analysts were looking for 2014 to have auto sales of 16.4 million. With three months already gone, the pace is equal to last year, which had sales of 15.6 million. Already some analysts are lowering expectations to 16 million. Essentially there is some optimism, but there also seem to be a lot of reservations. As an investor in satellite radio you need to keep your finger on the pulse of the auto sector. It is, after all, the source of the most subscribers.
In my opinion, the street is starting to get wise to the short term issues that may be happening at SiriusXM, and signals about the largest source of subscribers that are less than enthusiastic compound the issue.This is not to say that SiriusXM’s 2014 will be bad. It is simply saying that the bed of roses that existed last year is not what it used to be. The company spent $530 million to acquire Agero, spent $160 million buying back Liberty owned shares, spent money launching a satellite, and will be spending an additional $340 million on more Liberty held shares next month. In the past 6 months this company has laid out well over $1 billion (including the pending $340 million to Liberty). This will all show (or has been shown) over the Q4 2013, Q1 and Q2 2014 conference calls. Yes, the company brings in a lot of cash, but it is spending a lot as well.
What the street wants to see is that SiriusXM can be the cash machine that it once was. The street wants to see added value, compounded with share buybacks on the open market. This dynamic may not really set up again until the second half of the year, making the near term not as pretty as we would all like. We need to monitor auto sales and incentive spending over the next couple of months closely. Thankfully the current guidance from SiriusXM is conservative enough that we should not see a need to adjust down.
It is true Jan/Feb auto sales were ho-hum at best. Perhaps this translates into weak Q1 subs, and insiders got a wiff of that allowing the stock to sell off. That is a concern I’ve had for weeks. If you combine that with the apple stuff floating around, the q4 earnings miss, lower conversions, 2014 guidance, uncertainty with Malone’s intentions, it’s a “perfect storm” driving the share price lower.
If Q1 offers an earnings surprise, with/without poor subs that could make up for the shortfalls. Also, Q2 and beyond should be better as auto sales should improve this summer. One concern…Sirius continues to struggle and Malone swoops back in with another offer with Sirius at bargain basement prices after Q1 subs are out. I think that’s low risk though, likely not much to happen until tracking stocks are issued. Also, next month share repurchases will resume in earnest, defending the share price. Maybe you’re right and the 2nd half of the year will in fact offer patient Sirius longs the relief they’ve been waiting for!
Spencer,
What you are saying is “almost” true. It appears you are learning from CN, and this is dangerous.
Let me ask you a question. Why are you compounding siri’s expenses from last year with this year? This is very unfair to the company that had a phenomenal 2013 in terms of setting itself up for future years both in terms of debt payments and new technology (Agero).
This year, so far, we know that siri will buy back other $340 M shares from liberty. Why is this bad? We also know that the company has just reiterated its 2014 guidance where fcf still stands at $1.1B. I assume they know the auto market better than you do. What is negative here?
I agree with you that the auto sales are slower than expected. However, we also know that 80% of the country has gone through brutal winter and the slowdown impacted not only auto sales but most of other retailers.
We still see 16M new auto sales projected, right? Is this a positive? We still know that the number of sat enabled used cars is growing. Is that positive? What is bad about that?
I also agree that most of the action will fall on the second half of the year. But this does not mean that Q1 and Q2 are going to be bad. No, they will be decent and may be much prettier than you think.
Are you trying to spill your spite here because of the deal with liberty that you advocated so vehemently fell apart? The company is fine, the year will be stellar and you should tone down your rhetoric. Fear mongering is not the best recipe for gaining respect.
I dont agree with you = fear mongering?
You may not like his opinion but, nothing about this article was “fear mongering.”
SXMfan=not sure how many articles you’ve read from Ole Spence,but previous writer is correct=he’s absolutely guilty of fear mongering.Unfortunetely.
ah did it not crash after the deal was killed?
luke…
I do not fear monger. I look at equities with a critical eye
@Luke
To answer your question, I have been following Spencer’s work for the better part of 5 years. I have never seen him “fear monger.”
SXM,
When a person budles all the negatives and compeltely overlooks the positives he has an agenda. And his agenda is such that the company is doing so-so and you will be losing money. I’ve heard these stories a zillion times.
The company’s initial sub guidance has just beem confirmed at 1.25M net subs. We know that the company will be adjusting its guidance up. What we do know is that the change in the GM deal will have a negative impact for some time but what we do not knowis what will the impact of Piolin on Hispanic sub growth be.
It is way too early to make negatvie conclusions. I would worry some but not much if siri gets under 300K new subs in Q1. Even with this number they will be hugely cash positive and profitable.
sirifair….
Sorry you feel that way. I suppose you love the drop down to the low $3’s
Sirifair…I have a pretty substantial tie to the hispanic community. The hispanic programming has been available for quite some time now. We are not seeing droves of people coming in.
Sirifair6-
“We know that the company will be adjusting its guidance up.”
We do not know this. The company did not state that they will be adjusting their guidance upward. Many of us longs are assuming this because it has happened so much before. History does have a tendency to repeat itself – but it only does until it doesn’t.
I think that the concern for Q1 is warranted. What we will need to watch for, imo, is higher subs than expected in light of the weak auto sales, or, stronger positives in other metrics (earnings, conversion rates, buybacks, etc.). Aside from that, the summer should offer better auto numbers and that should translate into a better second half of the year. In other words – short term there is risk …and the stock may go lower yet (I don’t chase bottoms, it could stop here, or it could dip into the 2’s. IDK. But, I have confidence that the company will perform this year, and by year’s end, $3 down from $4.18 will look like $1.27 did down from $2.44 back a couple years.
There is also the possibility of Liberty offering another share swap when they do their tracking stocks in Q3 which could cap shareholder’s upside on a recovery. And while I actually favor a deal because a combined cash flow could allow for long term strategic buybacks, acquisitions, and spins that could not be achieved with things “as is”, in the short term that would hurt because I have options that expire in January, so I need the share price to recover before I’m ready for an offer. I guess though without risk, there cannot be reward. So here’s to keeping the ole fingers crossed!
By the way, I agree that even if subs come in weaker in Q1 (and that is speculative at this point), it is likely that the FCF story will remain a shining star for those with long-term horizons. 🙂
Sirifair…
I am not compounding. I am simply pointing out trhat over a 6 month period that a substantial cash and credit outlay has happened. It is not fair or unfair, it is an accurate portrayal of what has transpired. You feel Agero will be worth $15 billion in revenue in the next 5 years. You are entitled to that. I do not think you will find many that will agree with that assessment.
Buying back shares from Liberty is not bad. I am not saying that it is bad. I do not like that the company will spend $44 million more than they could on the open market though. Remember, the Liberty shares are being bought at $3.65. Sirius XM is trading at $3.13.
yes, they did reiterate $1.1 billion. That is quite fine. Do they understand the auto market? Probably very well. You seem to think that I do not understand it well. That is fine. I am more than comfortable with my understanding of the auto sector.
Auto sales are slow. I am glad that you understand that. What does that mean? It means that the Q1 numbers will have some challenges. Perhaps even Q2. Is it wrong of me to see this happening? Is it wrong of me to inform readers that this may be happening? I do not think so.
Is 16 million in auto sales positive? That depends on perspective. If you place it against the projected 16.4 million that was being estimated just 5 months ago, it is not positive. You ask what is bad about 16 million. I am telling you that what is bad about it is that growth is slower than was originally projected. Compounding that issue is that incentive spending is going up at a clip that demonstrates softness.
Q1 and Q2 can be decent. I was not saying that they will be ugly. These two quarters will likely not be the types of quarters that propel this equity to $4 and beyond.
I did not advocate THE Liberty deal. I stated that I thought it would be sweetened a bit, and that overall it was good for the company as well as investors in the company. That assessment was proven out in discussions with analysts , institutions, etc. I felt that the equity could grow with a Liberty deal, and would get punished if the deal did not happen. Further, I stated that there was a very narrow range where the deal made sense to all parties. You can go look up the several times that I stated these things. In the end….I was correct.
Spencer,
Your response a just cheaaaap!!! I hate such responses where the first half is true and the other half is a lie or a stretch. The good news to you is that you are not the first one and not the last one juggling insinuations and stretches although it does not excuse you in any way.
I would love to see where I said that Agero will bring $15B in five years. If you show me my statement where I say EXACTLY that I will apologize before you and will never reply to your articles in the future.
In the meantime, I will take some time to show that you are twisting facts the wway you would like them to appear:
1. You are compounding by mixing up the events of 2013 and 2014. This a fact that is stupid to deny although it is not in your habit to acknowledge things.
2. It is ridiculous to claim that siri will overpay liberty. How far do you want to go with such insinuations? A deal is a deal. I can lament that if there were no libery sirius could be today at $10 per share. Compared to the price when the deal was agreed to liberty was getting a rock bottom price.
3. Sirius XM knows the auto market inside out because this is their business and they have a direct access to such information that you will never know and will never have. Do not use the word “probably” trying to climb to the same level where they are.This is way too arrogant although this has been you modus operandi for quite some time.
4. The challenges they are going to have in Q1 and Q2 have nothing to do with the auto sales that are the same as the year before where did very well. The true challenge is a temporary not unexpected net sub hit from GM that will wear out as the year goes by. However, why wouldn’t you state that there is a huge cash positive for the company as the result of this deal leading to much smaller revenue sharing with GM and more cash to the bottom line.
5. You did advocate the liberty deal on multiple occasions. Moreover, you were going out of your way to create an impression that liberty deal “was a done deal”. The problem is you will never admit that because you are infallable in your wild imagination.
Spencer,
You say,
“I have a pretty substantial tie to the hispanic community. The hispanic programming has been available for quite some time now. We are not seeing droves of people coming in.”
First, if your sources with the Hispanic community are as reliable as they were with the institutions when you were saying that the funds would support siri’s acquisition from liberty then you do not know what you are talking about, from experience.
Second, Piolin was signed up in October 2013. It is too early to make conclusions about his impact. We need at least 12 months for that. My take is that Piolin’s effect may be not as strong as Stern’s but strong enough to bring onboard a significant number of Hispanic listeners.
Sirifair….
Look at what has transpired since Liberty withdrew the offer. SiriusXM has been stung. That is what I said would happen, and that is what happened.
My wife is hispanic.
The valley in Texas is predominately hispanic. I spend a good deal of time there and have many friends in the hispanic community. Piolin on SiriusXM is not that big of a driver. It is nice, but nothing that is driving subs.
Please define significant as well as the timeframe you see this happening in……Please remember, the company guidance is not demonstrating that Piolin will be a massive draw.
Spencer,
The fact that a member of your family is Hispanic does not mean much. This is anecdotal evidence.
We do not know what the effect of Piolin will be on the Hispanic draw. Still, it is reasonable to assume that, being a major figure on the Hispanic radio market, he will draw substantially. There are two major Hispanic markets – LA and Miami. The main draw should be there. I believe that Piolin may draw in 2014 between 500K and 1M new Hispanic subs. Since neither you nor I have a crystal ball only time will show. One thing I am 100% confident is that Piolin will pay off his salary ten times.
Now, about where the stock is. I am not scared and look at this ridiculous share price as a phenomenal share buy back opportunity that will unexpectedly help my model of a much faster share buybacks. If Q1 and Q2 are not so good with subs around 300K each or may be even less, the share price may tank even further, and that will be a phenomenal opportunity to buy back over 1B shares in 2014. This will be a game changer.
And last but not least. Even if the sub numbers are not stellar in the first half of the year, fcf and revenue are going to be strong enough for the company to support massive buybacks. This is all I need because my sell time is years away.
I disagree that being around a bunch of Hispanic people is anecdotal. If there is a buzz around something, you hear about it. This goes for any race, religion, or profession.
If someone is telling people that some new horse product is all the rage but I’m a horse rancher and me and all of my friends that actually have a horse farm don’t care… who would you believe?
For the record, I also agree, Piolin will not be a significant draw. Its already been months. They call this guy the Howard Stern of the Hispanic community but, he is not pulling numbers like Howard and we know it.
Siri…
Okay, so in your opinion, being around the culture does not mean much. By the way, the Texas market is bigger than the Florida, but lets not even go down that path. I mean the fact that Piolin is Mexican and Florida is more Puerto Rican and Cuban than Mexican does not matter… right?
Take a look at Google trends. I think you will find it quite telling.
You are looking for Piolin to draw 500k to 1 million subs this year. HMMM
In 2013 the company added 10,136,381 gross subscribers (9,617,771 in 2012 and 8,696,020 in 2011).
Do you agree that absent Pionlin that gross additions should be 10.4 million this year?
So, with Piolin, you feel that the gross additions line should be 11.9 million to 12.4 million here in 2014….Is that about correct?
Now… let’s get to his salary. Estimates were that prior to satellite his salary was $5 million. So you are looking at him paying his salary 10 times over. That would mean that you are looking at $50 million per year in profit from Piolin. Think about how all of this ties together.
Poilin is good, but I have note seen evidence in the community that he has gone viral. Sorry, but it is what it is.
In the past 6 months this company has laid out well over $1 billion (including the pending $340 million to Liberty)
This is no longer true Liberty in not selling there shares back to Sirius ( saw this on a Bloomberg video)So all the buy back will be from the open market
The video Is called” What Is the Future for Sirius XM Radio?” On Bloomberg, Listen at 1.40
Bob,
The second transaction was placed on hold until April. April will be the $340 million buy. There has been no information from the companies stating that this buy will not happen.