Auto Sales Mix In September A Boost For Sirius XM
September auto sales are now in the books and the news is good for Sirius XM Radio. The quarter saw just over 3 million cars sold, and as we know, 1 million in sales per month delivers across the board positive metrics for Sirius XM Radio. In Q2, when similar auto sales numbers were delivered , the company announced 583,000 net additions to the subscriber roles. Q3 should deliver a similar number.
As someone who follows the OEM channel numbers closely, I have been able to deliver a unique look at the subscriber picture as it relates to Sirius XM. I take the extra step to break down auto sales into three distinct categories, LEADING, POINT OF SALE, and TRAILING. The importance of this extra step is that not all car sales create subscribers in the same way.When sales are balanced between the three categories the subscriber line trends more smoothly. When the categories are out of balance, an impact on the metrics can happen.
Leading OEMs deliver subscribers soon after the car is manufactured. This type of subscriber is added to the roles prior to a vehicle sale. This helps metrics like fully loaded churn, but add to deferred revenue (a liability). In September the sales mix delivered by the LEADING category swung upward. This means that there is potential for a boost in the sub numbers, as well as in deferred revenue. It will also help the churn metric.
Point of sale subscribers in September were actually the lowest of the three categories. Point of Sale subscribers happen at the time the car is sold. They help fully loaded churn during the promotional period.
The Trailing category are promotional subscribers that are not counted at all. They impact SAC because the company has invested in a radio that is not being counted as a subscriber. They never become churn, because the only way they ever become subscribers is if the consumer elects to become self paying after the promotional period.
In September, there was an above normal boost from the Leading category. Thus, the subscriber roles will see a positive impact. Sac cost are divided into a larger number as well, meaning that the SAC per gross add number will remain stable. The gross additions are high, so likely the SAC line item will carry costs similar to last quarter. One distinct possibility is that the penetration may rise slightly due to the new model year. The bottom line is that we should hear a great subscriber number when the company announces.
What investors should watch for is the release of these numbers, as it will be yet another confirmation that Sirius XM is on a path to better and better financial metrics that investors can have confidence in. There is potentially a few big news items in the next for weeks. Sub numbers, Stern, and Q3. All of these will be positives for the company. The Bulls are now gaining momentum, and these news items will let the bulls continue to run.
Position – Long Sirius XM Radio
Exquisite detail! Thank you Spence.
I continue to be baffled at David Joyce (Miller-Tabak) forecasting just 99,000 net-adds for Q3-10, particularly in light of the detailed breakdown you have now provided. What could he possibly be thinking?
A few weeks ago I also called David Bank (RBC) “clueless” and you asked me why. The report you have produced here today provides that answer.
David Joyce and David Bank are alone in the wilderness.
They have blown it for their clients and they are hoping to dampen enthusiasm for a better entry point maybe.
He looked clueless today on TV, so you nailed it Roadkill.
Bank and Joyce do not understand Sirius. That is really all we need to know.
Spencer,
Your analysis as always provides a unique insight into mechanics of siri sub growth. It is my understanding that siri’s growth in the first half of 2010 is a little bit over 750K new subs. Karmazin just updated his 2010 sub estimates at Liberty conference to 1.3M. This means that he projects only 550K new subs in Q3 and Q4, 2010 combined, which significantly les than the first two Qs results. His estimate suggests that Q3 results may be very low, around 200K-250K additions because Q4 is always the best quarter of the year due to promotions and strong ad campaign. How do we reconcile his estimates with your very reasonable, in my view, analysis? He appears to be low balling sub additions really big because if Q3 brings about growth similar to Q2 in the range of 500K new subs, siri will practically have met its 2010 growth target of 1.3M. Mel SHOULD KNOW by now Q3 numbers. It appears that Mel should be projecting 1.7M -1.9M new subs in 2010 rather than 1.3M. How do we reconcile his estimates with reality? Is he trying to pace great news to gradually raise the stock by injecting bits of positive events to help analysts get used to the idea that siri is on a roll? In any event, he should know what he is doing. I am really curious now what they are going to announce.
V.I,
remember Mel has only estimated 500k for the whole year. These actual numbers are off the charts. Mel will under promise and over deliver. The numbers will be great.
The disparity between Mel’s remarks and your projections on subs (I agree with you) leads me to think Mel may be acting like a boxer—feinting with one punch and throwing another harder one.
If I’m in his shoes, I’m going to try and frustrate the short sellers. We shall see.
The disparity between Mel’s remarks and your projections on subs (I agree with you) leads me to think Mel may be acting like a boxer—feinting with one punch and throwing another harder one.
If I’m in his shoes, I’m going to try and frustrate the short sellers. We shall see.
Good break down Spencer. Sirius is firing on all cylinders, there is no way anyone can predict where this stock will go with certainty by years end.
S&P credit upgrade today
Howard re-signing (very possible)
3Q results (Mel low balling estimate)
Nasdaq 100 in December
4Q results (Mel still low balling)
S&P upgrade (again)
Satellite launch 10/14/2010
Even today the market is down with Siri rising. There is a lot of positives with little to none negatives.
And check out Chrysler selling more cars than Honda. I thought they were headed for the automotive scrap heap.
There’s no doubt about it, people are buying cars again.
i think maybe some promos expired and churn higher for people not signing up–As stated above, if we net out the same sub additions then the past quarter–we are already over 20 million and have hit mels stated target–Im thinking they either have lower numbers then expected for this quarter or are expecting lower in 4thQ–Remember that we dont have anymore retail sales around xmas as we used to have–Stock is running out and most additions around OEMs—I not sure the car sales are high in 4thQ?
Gary, 4th Q sales will be made in Oct. & Nov., if they are going to be decent. Dec. is historicially a bad month for vehicle sales.
so if the 4thQ isnt that good, are we at 20 million now??
Does any know a reason why Malone would not buy the company as soon as the handcuff is off? What are the rules that allow him to keep the tax credits?
To me all is looking good. 2 dollars by years end….ya never know!
Sirius dude,
We should not be shy speaking about siri at $2.00. What is happening now is just the beginning. What about $5+ at the end of 2011, early 2012 on a great sentiment of last satellite launch, $220M debt pay off and new 2M+ subs in 2011. What is happenign with the company is absolutely natural for businesses with practically no competition and excellent focused management. I said it before and I will keep saying it, “siri will be a very profitable company not just in radio industry but in general”. I expect siri valuation at 50B+ as early as 2014. There are no true comps for siri in its industry.
Dont Jinx it! You should be shy when you speak about SIRI at $2. Obviously you didn’t ride the wave down like I did. I got lucky, never sold when my $4.50 SIRI closed at .06. I was able to average down and now show a healthy gain. I hope you are right, I would love to see $2 now, $5 at the end of 2011, and 50B as early as 2014(10 times today’s valuation. Im a fan of SIRI, but it doesn’t need a cheerleader.
Actually, I think v.I’s scenario is very realistic…just sayin 🙂
Yo v.l, when I click on your name, I get a web page on Astrotech Corp. (ASTC)… what’s with that? Good Investment?