June 2011 Auto Sales Weaker Than May but at Good Levels for Sirius XM
June 2011 auto sales are in and the good news is that the numbers are great news for Sirius XM Satellite Radio (NASDAQ:SIRI). The bad news is that sales were slightly weaker than a bad May, and the SAAR (Seasonally Adjusted Annualized Rate) came in at only 11.4 million. This means that not only were the raw numbers slightly weaker, but the SAAR dropped from 11.8 million as well. As Sirius XM investors should be well aware of by now, the auto sector news will impact SIRI.
For the quarter, nearly 3.3 million cars were sold. With a 60% penetration rate this would equate to nearly 2 million promotional subscribers being brought into the fold. This should enable the company to report good metrics across the board during their Q2 conference call which is anticipated to be held in early August.
The key thing that investors must understand is that not all of these promotional subscribers are counted in Sirius XM’s subscriber numbers. There are three distinct sub-categories of promotional subscribers. Leading subscribers are those that are counted at the time of production (green in the chart). Point-of-Sale subscribers are those counted at the time of sale (yellow in the chart), and Trailing subscribers are only counted if the elect to become self paying.
As you can see the Leading category is currently dominating the quarter. Over 40% of the cars sold during Q2 came from this category. What does this mean? Simply stated it means that the pool of Leading subscribers is bigger than normal, and the subscriber numbers will benefit from this dynamic. The contrast to that is the Trailing category, which is weaker than normal. This means that the pipeline of potential subscribers was not being filled at the rat is was in Q1 prior to the disaster in Japan. On the positive side, the Trailing category gets assistance from CPO programs and GM’s new used car deal with Sirius XM.
Looking at the auto sector from both a monthly and quarterly perspective, Sirius XM is in great shape. Over 1 million cars sold in June, and the average for the quarter was 1.1 million cars sold per month. Looking at the auto channel in the second half of the year things look fine as well. Ford recently stated that they anticipate sales to climb through the second half of the year. At the half way point of 2011 auto sales are already at 6.3 million. By simply doubling this number the year would bring sales in at 12.6 million. Most analysts are anticipating that 2011 sales will be near 13 million. The combination of Ford and GM alone could push 2011 sales above 13 million.
As always, being in the know on what is actually good news for Sirius XM may not mean that we see this positive news reflected in the stock price. What oft happens is that the overall news of the sector rules the day. While good news did come out for many brands, the weaker sales of several were a drag on the sector. If headlines this weak center on the low SAAR, Sirius XM could see a dip happen. If you trade the equity this may well present a buying opportunity prior to the typical pre-conference call run-up.
Position – Long Sirius XM, Long Ford
Nice read, Spencer, timely and point on…in particular, buying opportunity on any price pull back due to shortsighted reaction to the overall June sales is exactly what well informed investors will take advantage of…
Thank you for the kind words
and your 2ndQ guess for Net new subs Spence is?
Gary,
That will be coming out soon
Spencer,
You don’t seem like a Sirius fan based on your response in a Seeking Alpha article…You claim that customized internet services blow Sirius away? Is that fact or opinion?
http://seekingalpha.com/articl.....urce=yahoo
Let me qualify this by saying I am a huge gan of satellite radio. Now I will give you some information you may want to consider.
1. The “data plan” argument is the weakest argument that has ever been discussed as a problem for Pandora. The argument is actually laughable. Consumers are going to buy data plans no matter what. 95% of Pandora’s listeners do not go over the 2GB “limit” established by At&T. I have an unlimited plan, use data all the time, and on very rare occasion go over 2 GB. Any credible author would NEVER use this as a “weapon” against Pandora. If they do they are simply being a fan-boy of terrestrial or satellite. The data argument is so laughable that I challenge ANYONE to show me factual data that supports such a position.
2. You say Pandora has no money. They just had an IPO and raised well over $100 million for use by the corporation. They have a ton of money right now. If you remove the expenses for their IPO they would have been profitable last quarter.
3. You say they have minimal amount of revenue generating contracts. The company gets about $40 million in ad revenue each quarter. This is not chump change.
4. You point to Sirius XM as having the “highest level of content. Again, I am a fan of sirius XM. Internet radio services that are customizable blow Sirius XM away. I do not use Pandora much, but I do use Slacker. What you should be asking is why some like me, a HUGE fan of Sirius XM, oft tunes away to use Slacker or even my iPod.
5. In Q1 of 2011 Sirius reported self paying subscribers of 16,807,643. In Q4 of 2010 Sirius XM reported self paying subscribers of 16,686,799. Their growth was 120,844. Total NET additions was 375,000. Only 32% of the net additions are people “willing to pay” for the service. 68% of the NET additions were people getting it as a promotion. Do you consider 120,000 self paying subscribers per quarter a good pace for growth? Yes, I am pointing out a “bearish situation, but most Sirius XM writers out there would not dare even bring this up for fear that Sirius XM’s passionate investors will melt down. The fact is that most of Sirius XM’s subscriber additions are people getting the service for free!
6. Contracts with OEM’s… True. Sirius XM has contracts with OEM’s. Internet radio is just now getting to that point, and their path into the dashboard is far easier, and far less expensive than Sirius XM’s The sooner investors understand this the better off they will be.
7. You say Sirius XM caters to people that pay for a service they love. Go to my site and look up Bill Mack. Google people that loved ethel, lithium, the death of a modern jazz channel, etc. Google Sirius XM complaints. Look at the drop in sound quality. Look at the complaints about customer service.
8. The argument that Internet radio users do not have the “means” to pay for the service is another laughable argument that only a rookie would use as part of their platform. First internet radio (in general) is paid for by advertising. The demographics of Pandora, etc. all have plenty of money. Look up the demographics and you will never use this argument again.
Pandora is not a flash in the pan. They will be around and viable for a LONG time.
Perry….
I am a huge fan of satellite radio. I am also a realist. In my opinion, on music, I think that Slacker has features that make it a much more enjoyable experience than satellite radio. That is a fact. Ever wish you could fast forward past a song playing on Sirius XM? On Slacker you can. Even want to hear more of a particular band? On Slacker you can. Ever want to hear a song instantly? On Slacker you can.
My response to Robbyboy is simply the opposing side of the coin he is presenting. What I presented in that answer is factual.
Why is it that there exists a class of Sirius XM investors who are so in love with their investment that they refuse to see a reality that is right in front of them.
I try to be real. Sometimes that means pointing out negatives that exist but people would rather ignore.
What I believe is that there is room for several players in audio entertainment.
Spencer please ask Perry to list what was the amount of Free Cash Flow produced by Pandora during the last 12 months. Then have Perry compare that amount with the FCF produced by Sirius XM during the same period. Finally, ask how Pandora will ever be able to change its comparative short comings in the future.
Perry will not be able to provide a reasonable answer.
william….
The comments in Perrys post were attributable to me.
Comparing FCF between these two companies at this point is not a prudent or relevant comparison. Pandora is just getting to the point where Sirius XM was in 2003. The company has potential but has not proven itself yet.
Pandora can address their “shortcomings in a few ways. They can raise prices, increase ads slightly, institute a $1 per month royalty charge, etc. The company will get there, it will just take them some time.
Perry, Pandora is an internet music service.
SiriusXM is a ubiquitous, satellite based, full spectrum broadcasting service.
Yesteday on a 150 mile trip, I and my companions began with listening to a country western ch., then to CNBC for market updates, over to the 50s, and 60s ch., the weather and traffic ch., and closed the trip out with an old time Radio show.
All I needed to access this package was my thumb and index finger—–no passwords or user names, no waiting for some Microsoft of Adobe download to complete before listening, and no loss of connectivity that the internet still serves up.
great article spencer. really appreciate you not being so negative. yes…you were killing siriusxm for a lil bit. I have to say james it’s all about the guts of the service. full service along with it’s flexibility and also the fact that siriusxm has a soul. I’m talking about the dj’s that tell a story, the engineers behind the scenes trying to figure out what we want to listen to. producers that put together shows that we like/dislike. technology. by the way spencer. i hit a rock in buzzards bay the other day in the boat that siri bought me. already in the shop. looking for that next run-up. go siri