Missing the big picture

I believe people have been so cought up in the subscriber numbers that they are missing the big picture. Lets first start with the thing that I think is the most missed by people, the ARPU. That as gone up, yes thats right after quarter after quarter of it coming down ever so slightly it as gone up and not by just a few cents but by 2% (ARPU=10.60). Now for those that like to equate this to subcribers that would be like adding 190,000 subscribers to the rolls in the 4th quarter. I find it amazing and so should most that with the economy the way it is, that they were able to get more people to spent more money on a nonessential like satellite radio. You guys have to get out of looking at just the subscriber numbers and I am not saying that they also are not important put they are not the only metric that needs to be looked at. There are other numbers just as important. For instance if the ARPU were to have gone down by 25 cents instead of up. It would make a churn rate of 1.6 look terrible or even adding another 190,000 subs. You see keeping a sub or getting another one means nothing if they dont pay anything.



Now lets get into why if they can show they are starting to get into a major part of the synergies they dont really need anymore subs to be profitable. First it has been said before by several analyst that 10.5 to 11.5 million is the break even number of subs to become profitable (on a stand alone basis XMSRs number was a little bigger). One only needs to look at SIRI 2007 4th Q FCF positive to see that, they were FCF positive for the last half of 2007 (if you take FCF from the 4th Q and add that to the 3rd Q (ref. 4th Q CC)). I have a number that I believe is now the break even number, when both are working like a single company (still a few years off) that number is 16 million subscribers. The thing is now they are getting to at least 50% or more on becoming one company already. So if you consider 21 to 23 million subscribers needed at total with no synergies to become profitable. Then take 25 %, which is the same as taking 50 % of the cost off of one companies (P.S. there will never be a full 100% savings, extra content and a few other things will always be needed for both, the best case it will get to is 65% to 75%) you will get a number of 15,750,000 subs needed to be at break even. The bottom line is that they already have about 3 million more subs then they need to become profitable if they can get to the full savings of the merger.



As a side note, those figures did not include the EXTRA interest that now needs to be paid. That will add about 1.5 to 1.75 million more subs to the 16 million number.

definition

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ARPU-Average revenue per user (sometimes average revenue per unit) usually abbreviated to ARPU is a measure used primarily by consumer communications and networking companies, it is the total revenue divided by the number of subscribers.

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Great post John,you are right on the money...
When i look at 1Q report and going forward my keys are:
1.Revenue

1a.Arpu(avg revenue per unit)

2.Expenses

3.Sub-adds
a.OEM(auto's)
b.retail
c.Iphone(future)

4.Churn(currently1.7% per month,disconnects from total self pay subs per month)

5.Debt

6.EBITDA(Earnings,Before,Interest,Taxes,Depreciati on,Adjustments)

7.FCF(Free Cash Flow)

imromo24, thanks for that definition of ARPU. I forgot some may still not know what that is.


JohnnyIrishXM, thanks, while I still think it is important for them to show grow in subs. I have always felt ARPU and a few other metrics are as important, and I just felt those other metrics were getting lost in the background.

JohnnyIrish, 1.7% is for self-pay subs. Not total subs.

Truly excellent posts all around. In this recession and in this automotive sales depression, we are growing and the benefits of the merger are appearing on our bottom line. Whereas in the past growth was the factor in the share price I believe after this first quarter John's metrics will determine the share price growth, even more so now that our financial house is in order. I still believe that we will break one dollar by the end of the year.

I am continuing to purchase the stock and am holding on for the very long haul

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Originally Posted by FoolNHisMoney

JohnnyIrish, 1.7% is for self-pay subs. Not total subs.

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Are you sure?annual report says total subs.What is difference from total to self pay subs?are you talking promo's (trial subs)do not count?

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Originally Posted by JohnnyIrishXM

Are you sure?annual report says total subs.What is difference from total to self pay subs?are you talking promo's (trial subs)do not count?

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Johnny, the problem is that as we know of the 50% penitration rate on OEMs, only just under half of those stick with it. That is why the all in churn is so much higher then self paying.

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Originally Posted by john

Johnny, the problem is that as we know of the 50% penitration rate on OEMs, only just under half of those stick with it. That is why the all in churn is so much higher then self paying.

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Yes,that is what i thought,
Thanks John(just in case homer chimes in)homer your thoughts?

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Originally Posted by FoolNHisMoney

JohnnyIrish, 1.7% is for self-pay subs. Not total subs.

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Thanks Fool,appreciate it...

John, I agree that other numbers are more important for the short term. I think there will be some impressive information to come out of Q1 that will be a bit surprising. Increasing penetration rates in car sales, lowering acquiring costs, and keeping churn even are very important. Some focus I think is on sub totals because regardless of the bottom line, and how many subs they "need" to be profitable, it would be something extra amazing to show that even in the worst economic environment in our modern era, SiriusXM added subs this year. Even 100k would be great. Still growing. Still from year to year, more people decided to add SiriusXM to their expense budget.
But your post is accurate, and by far the more important numbers are the ones you mentioned. It would be a feather in their cap to add subs to 09. And I like how your post is timed perfectly against Brandons article. Always count on you John. :)

relmor2003, If you notice I did say that it is still important to keep getting net subs. Nobody wants a company that has stagnet growth. The main point to the thread was to not only show that the other metrics are important but also to show that the PPS is alot lower then it should be, if they start to show that they already have enough subcribers to be profitable. It is my sense that many dont think this is true or have forgot about it. It is like the fact that they already surpassed the number of subcribers to be profitable was never realized because look at what happen to the PPS after the merger. The financing concern overtook the fact about subsribers being enough to be profitable, basically it is like this fact got lost in the confusion.



Also in my defence, I put this thread up a full hour before Brandon published his article. LOL

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Originally Posted by john

relmor2003, If you notice I did say that it is still important to keep getting net subs. Nobody wants a company that has stagnet growth. The main point to the thread was to not only show that the other metrics are important but also to show that the PPS is alot lower then it should be, if they start to show that they already have enough subcribers to be profitable. It is my sense that many dont think this is true or have forgot about it. It is like the fact that they already surpassed the number of subcribers to be profitable was never realized because look at what happen to the PPS after the merger. The financing concern overtook the fact about subsribers being enough to be profitable, basically it is like this fact got lost in the confusion.



Also in my defence, I put this thread up a full hour before Brandon published his article. LOL

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Yes, I noticed. Completely agree with your post. It does seem that its been lost under the shuffle of the BS the media wants you to focus on. Hopefully Brandon keeps hitting these points with his articles, MF comes around, and just one or two MSM articles mention this soon. There should have been a media parade when this came to light. I think Q1 will be the first quarter where debt issues werent the major focus. Instead hopefully the focus will be entirely on their bottom line this time. Add any net sub additions, and this thing takes off. Beat earning(very very possible) and lets see that .80 cent range tested. :)

John great post and timely..... we talked about what metrics would be important after the merger and then it all got lost with the debt concerns as you aptly point out.... revenue streams from internet connects and apps on hand held devices will be another "skew" in the numbers as these markets grow.... All in churn and self pay churn have always been confusing when the company's were competing with each other and need to be cleaned up to be better understood by all. What better way than to look at ARPU? Growth will be important to maintain going forward, but not at any cost... Growth in Revenue will be the more important metric and with declining expenses getting to normalized analysis of the stock as an investment will be refreshing... Operating metrics like SAC, ARPU, Churn, and Sub #'s are important when EPS isn't meaningful... Let's hope this year can begin to give new meaning to GAAP metrics....

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Also in my defence, I put this thread up a full hour before Brandon published his article. LOL

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In my defense. it took me 12 hours of research and several hours to get it written. Not to mention having to figure out how to upload an xls file.

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Originally Posted by cos1000

John great post and timely..... we talked about what metrics would be important after the merger and then it all got lost with the debt concerns as you aptly point out.... revenue streams from internet connects and apps on hand held devices will be another "skew" in the numbers as these markets grow.... All in churn and self pay churn have always been confusing when the company's were competing with each other and need to be cleaned up to be better understood by all. What better way than to look at ARPU? Growth will be important to maintain going forward, but not at any cost... Growth in Revenue will be the more important metric and with declining expenses getting to normalized analysis of the stock as an investment will be refreshing... Operating metrics like SAC, ARPU, Churn, and Sub #'s are important when EPS isn't meaningful... Let's hope this year can begin to give new meaning to GAAP metrics....

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cos1000 I do remember I also think that is why there was so much frustration with this stock ( http://siriusbuzz.com/forum/showthread.php?t=735 ). Also If you recall I put this next part up at SA about a year back when the al la cart was being talked about and the MSM and analyst were all down on it saying it would bring down the ARPU.



"Here is a thought, How many subscribers do you think hold both SIRI and XMSR right now, and are paying the 25.9 each month for both. I have to say, I think the percentage is very very low. Now how many subscribers do you think that have had all the content that they have been exposed to from ether SIRI or XMSR would go down to the 6.99 subscribtion that really only offers music channels. I think that percentage is very very low, as a matter of fact if they would go for that package then chances are there is a big percentage of those that would have (churned out) left anyway. Now how many people that pay 12.95 a month to get one would not mind paying 2 or 4 dollars more to get the SIRI/XMSR you have now plus the best 13 channels from the other. IMO, The al la cart will not only lower churn, but may actually bring up the ARPU. Give them a year and then you will have another price point that will offer, access to both full services, for some higher price.

Here is an example I think we all can agree with: How much did you start paying for your cable/satellite tv when you first got it. Now how much are you paying. I would be willing to bet most have upgraded to the extra package and are now paying more then they did when they first started it.

All I am saying is when you here analyst say the al la cart is going to bring ARPU way down think about what happen to your cable/satellite tv bill. Just a piece of common sense. I also believe Mel Karmazin has thought about it to."

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Originally Posted by john

Here is an example I think we all can agree with: How much did you start paying for your cable/satellite tv when you first got it. Now how much are you paying. I would be willing to bet most have upgraded to the extra package and are now paying more then they did when they first started it.

All I am saying is when you here analyst say the al la cart is going to bring ARPU way down think about what happen to your cable/satellite tv bill. Just a piece of common sense. I also believe Mel Karmazin has thought about it to."

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yep, i think so too, and yes my directv bill up.

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Originally Posted by imromo24

yep, i think so too, and yes my directv bill up.

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imromo, I will give you another piece of common sence. Be prepared for the ARPU to go up again in the next quarter and even more in the following quarter. SIRIXM has said themselves that they have about 22.6% family plans. As of March 11th those people will be paying 2 dollars more. That will not bring ARPU up to much in the 1st quarter because of when it went into effect. It might bring up the FCF level (in the 1st quarter) because of people that signed up to avoid the price increase. There is going to be one clear thing that happens ether the 1st quarter is going to be flush with cash or second quarter is going to have another big increase of ARPU. We did not see a huge drop off in churn so one of those two things will happen. Ether one will set the stage for the PPS to go up. Anyway that is what common sense is telling me.




P.S. for people that want to look at it from a subscriber net add point of view it is the same as adding about 8 million to revenue per month or 660,000 new subscribers (that all depends on how many signed up to extend their subscriptions to avoid the price increase).