Sirius Xm Q1 2009 Preview
Sirius XM Radio will report the first quarter numbers May 7, 2009 at 8:00 AM Eastern. The numbers are widely anticipated by investors, as people want a sense of direction for the company, and to better understand if the business model is viable. With a slumping economy, and weak auto sales, the numbers at first blush will be a mixed bag. This could well add more confusion and uncertainty for investors in a time when uncertainty is most unpopular.
Traditionally, people have tended to look at the subscriber numbers as the barometer of the company. Big sub numbers meant big things in the future. Bad numbers meant that rough times were ahead. With the merger, and the company maturing to more of a media company there are other, perhaps more important metrics, that investors need to consider.
The adjusted EBITDA gives the potential better than any other metric at this point. If the company can get to a point of making money, subscribers, SAC, and ARPU take on far less meaning. In 2007 the Adjusted EBITDA was ($567,000,000). In 2008 the same metric improved to a loss of ($136,000,000). The latest guidance from the company was a positive adjusted EBITDA of $300,000,000 for 2009. If Sirius XM can demonstrate with Q1 numbers that the positive $300,000,000 can be obtained in 2009, despite slumping sub numbers, weak auto sales, and a poor economy, some will argue that the business model has been validated.
Bad subscriber numbers will grab the headlines of the uninformed, but those that want a deeper understanding will seek out not how many subscribers there are, but whether the bottom line is improving despite the loss of subscribers. With synergies happening, new revenue streams from programming packages and a price increase on the family plan, there exists a lower and new “tipping point” of the number of subscribers required to reach profits. Getting an understanding of what that number is should be the main focus.
SUBSCRIBERS
The company will lose subscribers. Period. Get used to that concept now, because it is what will happen. In Q3 of 2008, the company had gross additions of 1,846,996. In Q4, traditionally the best quarter of the year, gross additions slipped 7% to 1,710,052. This happened despite the biggest gift giving holiday of the year. The economy has slipped further since, and Q1 has never been a huge quarter anyway. If we project slippage of 20% from Q4 to Q1, gross additions will come in at 1,368,000.
From a raw numbers standpoint we now need to address deactivations. Deactivation differ from churn because churn is based on self paying subscribers. OEM promotions can deactivate without impacting the churn metric. In the past, total dactivations measured against the total subscriber base has been termed as “fully loaded churn”. While the company no longer gives the fully loaded churn as a metric, we do see total deactivations. In Q3 of 2008, total deactivations were 1,502,915. In Q4 of the same year, deactivations rose to 1,627,647. Fully loaded churn in Q4 was roughly 2.86%. Again, the condition of the economy plays a role in what transpires. Indications about car sales, and economic trends would make it reasonable to assume that deactivation would go up in Q1. Given that situation,if we were to assume fully loaded churn of 3.2%, then the subscriber picture would give us a net loss of (484,000) subs. That seems harsh, but that is the realistic potential here.
Simply stated, the possibility of Sirius XM reporting a positive subscriber number is about as realistic as finding a wild penguin living in Arizona. Investors should expect a negative subscriber number.
CHURN
Churn is reported on self paying subscribers. The level of self pay churn has recently been in the neighborhood of 1.8% to 1.9%. At their best, Sirius XM was reporting self pay churn of 1.5%. What this demonstrates is the impacts that the poor economy is having on SDARS. Given that Q1 was more troublesome for the economy than Q4, it would be reasonable to assume that there would be a slight increase in the self paying churn metric. What investors should anticipate is a self paying churn between 1.9% and 2.2%. What the street needs to hope for is that the Q1 churn number represents a bottom in the metric. Given that April car sales seemed to stabilize, and some economic indicators are flattening out or improving, it very well could be that the churn metric will be at its worst in the Q1 numbers. Only time will tell. At least we will have established a range that these and other metrics should fall within going forward.
ARPU
The average revenue per user is a metric that simply measures what each subscriber brings into the company each month. The higher the number, the better. For 2008 the ARPU was $10.51. I would expect that there will be a slight climb in this metric, but a major factor is OEM partner Chrysler. Because of the Chrysler deal, there is a negative impact on ARPU. Depending on current inventory levels, and sales that have transpired, the AREPU could carry a small impact either way. The $2.00 price increase on the family plan subscribers (about 20% to 25% of the subscriber base) did not happen until late in the quarter. I do not anticipate that this will carry a major impact on this report. It will show through far more clearly in Q2.
Where we may see a stark difference is in the “Best Of” programming. At last look, 500,000 subs were participating in this programming. This pool represents about $2,000,000 more per month in additional revenue. If the “Best Of” pool grew during the quarter, it will bump the ARPU upwards slightly.
In the end, I would anticipate ARPU coming in slightly higher than the 2008 figure of $10.51.
SAC
Subscriber Acquisition costs are the costs assigned to garnering a subscriber. These include subsidies, some marketing costs, etc. Given the current trends, and the lack of car sales, there has certainly been some adjustment into how much the company is spending. Mel is a cost cutter, and bottom line watcher. He will want to deliver a good SAC number because people are sensitive to costs now more than ever. Look for SAC to be in the low $70’s, and to represent an improvement.
As I stated earlier, the real measure of the results for Sirius XM will be in whether they will be on pace to deliver positive adjusted EBITDA of $300,000,000 in 2009. It is my belief that this metric will show strength, and will be a focal point of the call.
The Audio for the conference call can be heard by tuning in to channel 126 on Sirius or 90 on XM
A webcast is also available
Position – Long Sirius XM Radio
god i cant wait any longer, could some1 please invent a time machine asap.
I loved the 1st comment by Mark about wanting a time machine to get to Thursday right away. I hope it’s a two seater (with Sirius) so I can ride along. I recently bought 6500 shares at .45 with part of my tax refund then added another 2300 shares at .40 as I was getting worried it would climb the few days prior to May 7ths big report.
Yeah I am under a few hundred and wish I’d have waited a few days later to buy. Funny I bought the first batch just after it spiked to .60 thinking it would keep going but of course my luck put a stop to that. I am thinking about putting my last grand into them before thursday but thats putting all of my eggs in one basket. I look at it this way….I can lose my 6 grand or lose part of it, break even, make 6 grand off of it, or who knows, maybe hit 40 or 50k in a year or two (best case scenario). Who knows, it could hit $50 a share in several years. All eggs in one basket is not a good idea but from what I have been reading is that this thing is poised to strike big, real big and I want to ride that wave to a debt free existance and then some. Good luck to all.
With all your data and analysis why don’t you predict an EPS. I would be curious to see your prediction.
Here is my guess for the EPS.
Scenario 1
EBITDA = $300 Million
Outstanding Shares = 3.8 Billion
EPS based on EBITDA = $300M Share / 3.8 Billion = $0.019
Scenario 2
EBITDA = $300 Million
Debt Payment Q1 (scenario 1): $3.2B @ 10% = $80M
Debt Payment Q1 (scenario 1): $3.2B @ 15% = $120M
Net Earnings: -5M to -45M
EPS: N/A
Numbers could be better if additional cost reductions have been achieved like in Q4 of last year.
Until we find out who is controlling the daily stock trades, the pps will continue to sink or trade sideways. This stock has become someones candy store. I don’t care what the numbers are because it does not matter. The person who is causing havoc in the stock price MUST be identified. Over the past several months, 100’s of millions of shares have traded through ISEG. ISEG is no Nasdaq. Where are all these shares coming from?
Tyler…understand your position but disagree. Higher saturation rate should lead to better sub numbers. Also..alot more used car sales with SATRAD installed already may help drive numbers down from your estimate…not saying you are totally wrong..but I think your numbers are going to be off some.
Tyler,
I normally don not watch Mad Money (Jim Cramer). But last night as I was channel surfing I stopped. Cramer was talking about companies that are not actually more money but loosing less. They are cutting staff and cost, therefore improving their bottom line during these tough times. Roll foward and this ties into what you have written. Yes subs may drop and growth may slow, but if SiriusXM executes and saves millions of dollars it will be a positive. Cutting cost through synergies and mantaining what base they already have will be enormous. The growth will come when the economy gets better and SiriusXM will be ahead of the game.
Sorry for the errors, was distracted. Meant to say, making more money but losing less.
The most important thing will be cost savings. Period. The street can look past a quarter or two of negative numbers and truely it should in the current economic state. However, Like the article stats, If the company is seeing synergies from this merger and is still well on their way to 300mm ETIBDA then
i think investors will cheer this and see it as positive and the stock might rise. I dont look for the stock to do anything major one way or another. I dont see it going down because its fairly cheap as it is. I dont see a major increase on pps unless the ETIBDA is greater than first thought and the sub numbers are alot better than thought.
Hopefully we can just weather this economic storm until things get better. SiriusXm will take off in the next couple years.
hmmmmmmm Tyler, You know something we dont know….
“Investors should expect a negative subscriber number”?
Not that he has any info but being a realist unlike a lot of SiriusXM investors.
Yeah theres something to be said in these economic times for companies that are weathering the storm by paying attention to the cost side of the ledger, rather than the revenue side. Either way. Controlling the bottom line and eps is a positive sign. Turnaround is only a few months away…..lets hope.
“Given that situation,if we were to assume fully loaded churn of 3.2%, then the subscriber picture would give us a net loss of (484,000) subs. That seems harsh, but that is the realistic potential here.”
“Simply stated, the possibility of Sirius XM reporting a positive subscriber number is about as realistic as finding a wild penguin living in Arizona. Investors should expect a negative subscriber number.”
You need to keep your mouth shut! Let me remind you that you forecasted a “realistic potential” that SIRI was going BK in Feb 09 (wrong)… You also conjectured BK after Liberty infused $530MM into SIRI (wrong)..
Nothing you say means anything. You are a joke and I can’t wait to blast you after the conference call to highlight just how full of shit you are..
I was always told.. “when speaking… have something to say”…
“I’m the king of Rock
there is none higher
sucka MCs
should call me Sire
turn burn my kingdom
you must use fire
i won’t stop rockin’
til i retire”
RUN-DMC, 1985
peaceout
NawJersey….
You stated, “You need to keep your mouth shut! Let me remind you that you forecasted a “realistic potential” that SIRI was going BK in Feb 09 (wrong).”
Kindly refer to the article where I stated this, and give me the name of the articles author.
You stated, “You also conjectured BK after Liberty infused $530MM into SIRI (wrong)”
Again, kindly refer to the article in question and tell me the author of that article.
You stated, “Nothing you say means anything. You are a joke and I can’t wait to blast you after the conference call to highlight just how full of shit you are.”
What I say may mean nothing. My opinion is just that, my opinion. You can feel free to come and comment again. However, I would suggest that you have your facts straight prior to telling someone else to keep their mouth shut.
You stated, “I was always told.. ‘when speaking… have something to say'”
I would suggest that you add the word accurate between the word “something” and “to”.
hey wigger want a be,it was Brandon Mathews who wrote those articles not Tyler,just being correct here,not judging…
JohnnyIrishxm…you may be right.. it might have been Brandon…
Tyler: if it wasn’t you that wrote those articles back in Feb. 09 .. my apology.. my bad…
I’m still not feeling your “realistic potential” comments about SIRI where the best anyone can do is hypothesize about Thursday, 5/7/09… Perhaps you should keep it real and say “these or this is my opinion”
Tyler’s point is that we are moving away from adding loads of subs as the only measuring stick for SiriusXM to grow,it is also about making profit right now and cutting cost to get there.Having a neg sub loss in the worse quarter in the automobile industry is not that bad or unexpected,but the stock market looks ahead to the next year for investing and not past.past is why we haven’t moved up as much as we all hoped because the company couldn’t or wouldn’t give guidance numbers for the next 2 years at the annual CC.So hence no analysts can predict future SP..
I just bought a 2005 F150 at the used lot…but i tried to get into something new without $$.
Anyway…there is a big push on new cars with sirius at Ford…Dodge and Kia….everys tinking car at kia has sirius…
Ya don’t say…so your thinking at the end of 2009 we could increase by 2 million subs?
i think thats what Imromo’s trying to say
Running a small preowned dealership, cutting cost is my number one priority. I thank God that our sales have steadily improved year over year. What I have noticed is that more customers are paying cash or they already have financing arranged. I sell to customers from all over the country. Its surprising what good quality autos and very competitive pricing does. Its also surprising how far somebody will go for a great deal. Back to cutting cost. I watch every penny. When the economy turns, we will be just like SiriusXM, in the cat bird seat.
To save your company in the long term, you need to save it in the short term first to even get the chance (and this is being done in spades). The cost side of this business is controlable and fat as well, the revenue side will have to come back some thru economic rebound BEFORE an add campaign will pay off. To some extent it is beyond mgmnts grasp For the time being. There is NO perfect answer, just the lesser of evils at this point. For the time being, cost side management will give the eventual opportunity to go after growth & we all know that timing is life in a nutshell. Cut costs enough, and you get the chance to have paper worth selling, buy time until oem market turns and then factor in I phone app and whatever else Mel has up his sleeve, throw in some good targeted advertizing, and you have a 2.00 pps by next spring. Poison pill is good for all of us until then. I have 1.4 million tied up in this and I quit worrying the day after Malone showed up. Just watch guys, all will be well. Watch costs and ebitda. Subs will move up in the second half of the year to give us 500,000 new adds for the year & 2010 will beat that number all to hell. In the end, this company will be sold to Liberty for 2-4 pps by 2011, or to someone else for more. Mel will walk out solid, if not really well paid. Just my opinion, but my skin is in this as much as the budget allows. My only regret is that I can not afford to go 5,000,000 shares on Monday. Good hunting everyone, I hope these eventualities create lots of new millionaires.It is always a hoot to see people get rewarded for having the courage of their beliefs. Best luck to all of you.
all of that is interesting for the first q but effect will shuting down both chrysler and gm production for almost nine weeks really mean going forward into 09
shutting plants down won’t affect sales. They are shutting down because there is too much product on the lots. That product still has to be sold. When it does get sold they will increase production.
One thing for sure is due to the economic slowdown Sirius Xm is working to cut cost of operations. But another bright side is that with the auto sales down it forces them to seriously look at other ways of getting their wares marketed. That’s a good thing too. I agree w/ Paul they will be in a very favorable position when the economy turns around. But my gut tells me that if they annouce on the 7th of May that they are going to offer a format of free commercial based content so to turn all idle radios the market will embrace it in a very positive way. It’s time has come. There are enough idle radios out there and churn is always going to be part of the equation. Take advantage of the percieved negative and make it a positive. If you think long term we will always have economic ups & downs, so have a format where if you lose a customer that was a sub you then gain them on the commercial based format. Also one more point to make, if you bring on listeners on board for free with limited content & commercials at least you have their ear to entice them to eventualy to become a sub. You have know created an on going circle that covers all the bases that keep more consumers in the loop of Sat Radio. Isn’t that the goal?
This will also take away the mystique of Sat Radio. It’s a complex product that many potential consumers are on the sidelines because lack of knowledge on what this product offers. It will help relieve the consumer anxiety that occurs when a person won’t take the plunge due to not understanding what the product can do for them.
Turning on the idle channels could be a good teaser if done correctly, but I have every reason to fear that programming will just throw ad-supported versions of the most commercial 3-5 music channels out there. Which are basically FM already. So if satellite is a watered down FM, there’s no incentive to subscribe, in fact a poor free selection would serve as a constant reminder why NOT to subscribe. Something is badly broken on the music side of programming, and making it free won’t help, it will only lower the perceived value of the brand.
CNN, ESPN and the talk shows etc that are ad supported could be activated for free and that would increase the listener base which would increase the value/cost of advertising on those channels.
The only thing holding this back would be any of the national advertising arrangements that the NAB and FCC have enforced.
The real question TYler is how many cars were built in the 4th quarter 2008 vs. 1st quarter 2009. I would think at least 750,000 more cars were built in the 1st quarter 2009. I would guess they lost between 150-250,000 subs. Mel is trying hard to manage expectations and I would think he help back some 4th quarter subs to roll into 1st quarter. I am sure he did so on “best of” revenue. There are accounting rules that would allow that.
Good, honest article Tyler. I agree we will lose subs, but who cares and that’s to be expected!! All of the negatives are built into this price and I can’t see anything negative happening on May 7th. Sideways maybe, but not negative.
SIRI will show even MORE considerable costs savings, synergies, channel parter plans with Direct TV, Apple, etc and BEAT the Q1 75 Million in profit which we need to do, in order to beat the 300 Million that SIRI provided for 09 guidance.
All up from here friends (though it may take until Q3 to realize it).
Cheers,
-WhyNot
True Cost-Cutting should include the reduction in the pay of Mel Karmazin to $1.00 annually.
So sorry his stock options haven’t provided him with enough to live on, but, out of the mouth of babes, Melvin spoke: “A CEO’s report cards is the company’s PPS”.
Take the pay cut, Mr. Report Card!
Or at least stop flying everywhere on private jets, right? Plenty of CEOs of profitable companies fly commercial.
There has been a significant change in the caliber of customer service in their retention dept based on calls I have made. There was a very different experience when calling and switching receivers and when I canceled an XM receiver because of getting a new sub pre-installed in a car I just leased. Also on the weekend I am getting women from the Caribbean (Jamaica) and they have a very attractive accent and sound so pleasant and helpful. Much better than an Indian accent (irritates me to no degree)
Bottom line, they are doing some things that are very positive towards retention and Brandon may have something on his article just posted recently on Satwaves, but the question is, were these eforts too late to save Q! ?
Finally, I asked the cust service rep at Siius about new activations and she said it has really picked up in the past few weeks. She said it was ever since Obama gave all the $ to the car companies. I think it is more to do with the heavy advertising on the web.
My opinion is that it will not be quite as bad as Tyler thinks for subs and I think Q2 will be better and then Q3 & 4 will be back to nice growth again.
Whatever the sub situation is, the cash flow will be very positive because of price increase, best of and many subs paying up front. It may be possible for a .01 profit or break even this quarter because of the big cash influx. This may drop back down in Q2 & 3, but if Sirius bobs above water for once, then we could see a double from .38 cents for at least a little while.
Hey Tyler and Everyone, The movie about SiriusXM is on schedule for it’s release and we hope to include last minute POSITIVE news from SiriusXM. We appreciate your take on things! Best, Stock Shock @ http://www.stockshockmovie.com
I do not think that there will be negative subs for the quarter. This is just my opinion, but I would expect an additional 10,000 or so added to count. We will have to see what happens, but there are indications that the subs will not decline as the customer retention is at full force. Just call and try to turn off the service. It is not that easy as they have been instructed to sweeten the pot, so to speak, for those thinking deactivation.
Wouldn’t it be something if the company reports a gain of .o1 per share. It could happen.
Long SiriusXM