Sirius XM Reports Stable Numbers Show EPS Profit of $0.01
The Sirius XM Radio Q1 Conference call is now complete, and the street is just beginning to digest all of the numbers. For the most part, the numbers met expectations. there were perceived positives and negatives, but overall Sirius XM remained committed to their current guidance, while hinting that there could be some upside adjustment.
One notable item was in the ARPU line item. For the first time, the royalty pass-through costs were reflected in this metric. Sirius XM reported ARPU of $11.48, which blew away all estimates. However, absent the pass-through, ARPU would have been about $10.63, shy of most every estimate out there. I myself thought ARPU would eclipse $11.00 without the pass-through, meaning I would have had a miss of $0.37.
In my mind, the most difficult aspect of this quarter was trying to account for the 2.0% churn that the company pre-announced. As most satellite radio followers know, Q1 churn is typically the highest of the year. The fact that Sirius XM reported 2% was great, but I knew that it could only be accomplished by a balancing act with ARPU. I discussed this subject at length on SiriusBuzz Radio Show #54. What transpired during the quarter was that the customer retention efforts were more substantial than I would have anticipated. In essence, subscribers are getting discounted plans to remain with the company. This is not a bad thing. Some money is much better than none. My only concern is that it would seem most of the wiggle room is gone in this churn/ARPU balancing act. This leaves future growth to the subscriber metric.
On the subscriber front, things do look positive. The auto channel is ramping up. Auto inventory is down, so production will increase, and by extension promotional subscribers. Sirius XM kept their guidance of 500,00 new subscribers for 2010. They now have over 19 million total, and added 171,000 in Q1.
The revenue line missed my projection of over $700 million. Sirius XM reported $670 million. I think a good chunk of the miss can trace directly to subscribers getting good deals and discounted subscriber packages. The company did show an 11% increase in revenue, on what represents a 1% increase in the subscriber base. The price increases have helped, but ARPU may well be peaking.
Costs are well under control with a SAC of $59. I had anticipated a slight cost increase, but as we see from the auto inventories the production ramp is not as fast as I had thought. Sirius XM did issue a bit of a warning that the SAC line would go up with more production. Look for this in Q2 and beyond. The SAC line is stable, so there is little worry here.
During the call, the inevitable question about the Howard Stern contract was asked. Karmazin stuck to the stock answer he gave during the last call by saying that when something on the subject gets done that it will be announced on the Howard Stern Show. There is, as yet, nothing new to report here. Karmazin’s stock answer essentially said that there has been no real progress on the issue.
It would seem that this quarter was somewhat of a mixed bag that netted out to the same guidance that we already had. In other words, things are stable, the company is moving forward per plan, and there are no real surprises to the positive or negative. While decent numbers across the board showing even more growth would have been nice, we will have to come to terms that the positive outlooks already given will remain in place.
Position – Long Sirius XM Radio
I don’t think it was a mixed-bag at all . . the results were positive on nearly all fronts and the metrics clearly speak to that.
Some observers went into the call expecting Mel to increase guidance but he refused to do so . . . I for one am pleased that Mel is staying on script. The daytraders and research analysts can piss-off . . .
2 Points if I may:
1.) I don’t recall you qualifying your ARPU estimate as “without the pass-thru” but maybe I missed that;
2.) What about FCF??
Roadkill….
This is the first quarter that the company put the royalty pass-through into the ARPU metric. I did not qualify it because it had never needed qualifying. No-one was expecting the company to put that pass-through into ARPU.
My point is that absent the pass through, ARPU dropped from last quarter ($10.92) to $10.63. That is substantial, and is a negative. We all know they took a hit in ARPU to retain subscribers, and this comparison illustrates that. Not that it is totally negative…..money is money, but the metric did decline from last quarter.
Other mixed bag aspects were the guidance. They have used up all of the wiggle room. The Sirius “cake” is stable, but not as sweet as it could have been
ok-ok, but we will have to agree to disagree on this one; revenue is revenue . . why would I exclude any form of revenue from ARPU? I wouldn’t. Nor should the company. The analysts simply missed on this one.
Secondly, if the company knows that the pass-thru is accretive to the revenue line would that not possibly influence the extent to which retention efforts are increased; the two are not mutually exclusive considerations.
I agree that revenue is revenue. The royalty pass-through has, in the past, been withheld because it is pass-through. The company collects it, then pays it out. If the royalty pass-through were 1 million per sub, would you want it clouding ARPU knowing that the money is going right back out the door? This was nothing “missed” by anyone. When they first started the royalty pass-through they specifically kept it out of ARPU for the reasons I stated. This change in direction could not have been anticipated.
This quarter a metric that would have been a decline now looked positive because of the change they made.
Also, lack of increased guidance is not exactly what I would call a mixed-bag . . .
Yes, I do understand that some observers are upset that Mel did not hand them new guidance on a silver platter. So what!
Come-on now, are we suddenly all incapable of performing the arithmetic for ourselves??
Do we really need to hear Mel explicitly tell everyone that he’s low-balling EBITDA or net-ads (rhetorical question).
I fully agree that this was a “mixed bag” result. I am particularly concerned about retail massive drainage of over 300K subs. This means they cannot stop retail bleeding. It appears that they are giving up on any avenues of attracting new subs other than OEM. Even used car market sub traffic is very weak. Overall, siri could do a much much better job in retaining subs by being more specific about all kinds of options available, from very cheap to more expensive. Their customer service should do much much better. They should be producing much simpler and better organized retention material that would be as easy to comprehend as it can be. I am astounded that the company is so much behind on this.
Mel’s referral that siri is not “building cars” is a sign of weakness and strong dependence on auto market. This means that the company is too sensitive to economy and, in particular, auto market. This may not bode well and may indicate siri growth only as a function of a robust auto market, at least at this stage.
I am not very worried abouut free cash flow. They maintained their guidance there
agree, just wondering why such variance with your forecast
I did not anticipate full baseball payment bonuses, etc. I think FCF took many by surprise. The positive is that these conditions are now behind the company.
But the problem in holding it out is that you then have no offset to the expensing for that line item, no?
Isn’t it both a revenue and an expense
Yes, it is revenue. Yes, the payment out is an expense. ARPU is not a GAAP metric, and is designed to indicate the revenue that the company is deriving from the subscriber base from which they will potentially make a profit. The royalty is a pass-thru. They will never profit from it.
I was surprised to see it included in ARPU after they had previously stated it would not be included in the metric.
correction….
I said they will never profit from it…..I do not believe that to be the case. stay tuned
ok, you have whetted our appetites! do tell . . .