By Brandon Matthews
Recently I had written an article which estimated Sirius XM’s (SIRI) potential second quarter 2009 subscriber numbers. In all honesty, it was not meant to be a real estimation, as it was based on an estimation of a percentage of total auto sales. The way I see it, predicting subscriber numbers based on outdated methodologies is meaningless. Odds of hitting your states lottery are probably better.
Just look at the facts. Penetration rates among auto manufacturers vary by model, and are ever increasing through each line. The individual contracts that specify these rates and increases are held closely as if they were trade secrets such as KFC’s secret recipe. Little to no data is supplied regarding these individual penetration rates, which I cannot stress enough, are ever increasing. Occasionally, Sirius XM will offer a nugget of information such as Mercedes Benz increasing its penetration rate to 90% in 2009. Is that the beginning of 2009? The end of 2009? Are they still at 70%? 80%? It is simply impossible to know.
The subscriber “take rate” of those Satellite Radio equipped vehicles is also not a constant number, but rather a variable one. In any given quarter, the take rate can be anywhere from the low 40% range up to and past 50%. Likewise, “Churn,” which calculates lost subscribers in a given month has historically ranged anywhere from 1.6 – 2.8%. When dealing with auto sales in the millions, and a subscriber base in the tens of millions, those percentages can represent huge fluctuations and variables.
Despite these truths, some have taken me to task on my nonchalant subscriber predictions for Q2, 2009. This despite the fact that we know nothing of what potential the new Sirius XM Apple (AAPL) iPhone and iPod Touch applications may mean to subscriber additions, and despite not knowing the effects of recent Certified Preowned auto programs that have just gone into effect this year, as well as new deals with Carmax and AutoNation. Many of these CPO programs are so new in fact, that churn will be nearly ZERO percent, as most of these new promotional subscribers are still in their free trial periods.
Allow me to demonstrate the futility in estimating Sirius XM’s subscriber numbers, by looking at the possible range of subs assuming (yeah, I get that) that we know the exact penetration rates of each manufacturer’s model of automobile:
This chart makes the assumption that 1,719,813 new Satellite Radio equipped vehicles were sold in the quarter. If we assume a forty percent penetration rate, the total number of new OEM subs would be 687925. If however the take rate happens to be 50% for this particular quarter, the new OEM sub total jumps to 859907. That’s a difference of 171982 OEM subs.
Let’s now look at self pay churn. Churn is calculated monthly. Sirius XM’s self paid subscriber totals came in at 15.4 million last quarter. 1.6% of 15.4 million represents a best case scenario of 246400 deactivated subscribers per month (x 3 months) or a total of 739200 lost subscribers in the quarter. A worse case scenario could be 2.8% self pay churn, which would represent a loss of 431200 subscribers per month, or 1,293,600 deactivations in the quarter. That small difference in churn represents a potential difference of 554,400 deactivated subscribers.
All of this means that Sirius XM will report new OEM subscriptions between 687925 and 859907. They will have deactivated anywhere from 739,200 up to 1,293,600 subscribers. The potential for major subscriber losses exists, as does the potential for nominal gains. Of course all of this hinges on the unknown and assumed penetration rates.
Last quarter, Sirius XM began differentiating the way it reported subscribers, separating those in paid promotional periods and self pay subscribers, making all of this an exercise in futility. In fact the company also reminded us that promotional subscriptions peaked at 3.7 million in the second quarter of 2008, meaning a large drop in promotional subscriptions is likely.
Unknown are the effects of used car sales, CPO programs, retail improvements and the iPhone app. which cannot be determined at this time.
Position: Long SIRI
Everyone SHOULD understand that there are too many variables. We shall all wait until Q2. Brandon, As you hav stated before…some will only focus on the negatives once we get the actual numbers. The most important point is that the company IS on an UPWARD trend and things are looking up for SiriusXM and satellite radio!!!
@Jay Fishmanb
Upward trend? How do you figure that? The iPhone app was a joke. They are losing subs and the stock price is in the pennies.
i agree jay totally!!!
will they count Iphone app subscribers outside of USA? Website says its only offered via Iphone in USA.
Let’s face it: Sirius is probably going to lose a lot of subscribers this quarter again. Mel forshadowed that at the last call.
But this is not totally different from most companies right now though–no top-line growth, but quality bottom-line growth. Look at IBM as an example yesterday. They’re way down in revenue but driving earnings through cost cutting. Granted, you can’t cost cut to greatness, but that’s got to be the strategy during these times.
The auto market (which most of the business comes from) will come back, but Mel’s goal in the meantime is to continue synergy savings and dink around with iPhones apps and other forms of delivery. I think the certified pre-owned deal has the most legs for growth, other than new car sales, but that’s just getting off the ground. Q3 and Q4 are our real hope for growth with Sirius. While growth is on the horizon, we should probably prepare, barring any suprise anouncements, for a bit of a storm after the Q2 conference call.
How many more upgrades you need?
http://www.streetinsider.com/New+Coverage/Gabelli+Places+A+New+Buy+Rating+On+SIRIUS+XM+Radio+(SIRI)/4801847.html
And then there’s the post-bk scare factor. The fear of bk drove subscribers away. Subscriber rates may have started to trickle up after Malone stepped in. You wouldn’t buy a new car without a warranty, why subscribe to radio without one?
The information Brandon gave is what it is, highly speculative, but that’s what it’s all about. Taking a chance or risk with the potential of higher gains. I’m one of the people who pulled the trigger earlier this year when the stock price was below .10. I knew then either I was throwing good money away or I had a real good chance to make some money. Time told me that I made money. I believe that even if we continue sideways for a while that eventually we will double from here. Maybe this year, maybe next year. Either way, where can you get a 100% return on an investment. I could sell half my stock and let the rest ride as long as I want. Others should think the same way. There is way too much technology yet to be used with the satellites Sirius has.
Long Sirius
@sunshine
Whats wrong with the Iphone app…I’ll tell you what is wrong with app…it’s Dickhe%d’s like you who spew out BS without giving one ounce of evidence…Iphone app works great…absolutely nothing wrong with the app. Oh…your talking about the ratings at the Apple App store…there low…has absolutely nothing to do with the functionality of the app…which BTW is what the ratings are supposed to be for…Low ratings due to no stern and $$$ to use. No stern…will be resolved! $$$ to use…since company has to pay royalties on the internet feed…you for some reason feel entitled to screwing the artists…and you don’t have to pay…name one for profit company that is able to survive by giving away their services for free!
I know…I know…Netflix is not losing subs…they better not be…in this market…cheapest form of entertainment there is!!! With the auto market in the tank and the unemployment rate at 25 year highs…small loss of subs is understandable!
Positives…you want some positives…upgrade after upgrade after upgrade…500-600M+EBIDTA this year (-250-300M last year)…Decreased SAC by $25-30 per subscriber (Huge…do the math)…cash for clunkers, CPO car program…premium internet fee(hugh for COH), royalty fee (again huge for COH), Yes the Iphone app, marketing blitz in full swing!
Probable FCF first QTR 2010!
Penny stock…not for too much longer! 6 month’s to 1 year…$1.50-2.00…IMHO
Anything else sunshine
Brandon, First thanks for all the information that you provide. As far as the numbers go it is anyone’s guess. However it does bring a lot comments about the numbers good and bad, and also a lot of other secondary information that is interesting to read.
Nothing has changed, it still comes down to SiriusXM producing profit if we want to see the an increase in the share price.
They are closer to that happening now for the first time in their history.That is something to think about, when a stock price is cheap and the company is making money…
imho
vaporgold
Brandon,
I am glad you have come back to reality. I would love for subs to increase this quarter but there is absolutely no way. Subs will be down. We all expect that. The key is that cost cutting is under control and that it is working. When the economy turns and it will SIRI will be a lean machine. They will prosper in the years to come. They have a wonderful product but need productive marketing going forward but we need positive free cash flow before that will happen.
As much as I dislike GS, we need them to give SIRI a thumbs up. GLTA
@sunshine
.11-.40 in 7 months is an upward trend, especially when it contrasts the last few years od Sirius sp.
I don’t call the #1/#2 downloaded music app a joke. Plus I use it, and it is great.
“losing subs” is plural. Last quarter was the only quarter they have reported loss subs. Otherwise they have been growing subs at a very high rate, and will continue to grow more as the economy recovers, used car deals come to place and iPhone app.
Some people are just purely ignorant..
Trying to figure out subs is one thing, but trying to figure out why the media ignores Sirius is another.
Sirius just got ANOTHER upgrade yesterday that flew under the media’s radar without a mention.
Sirius IS the Rodney Dangerfield of stocks.
Anyway here it is, and it’s a good one:
Gabelli & Co is issuing a new Buy rating on SIRIUS XM Radio Inc. (Nasdaq: SIRI), saying while still speculative, they believe Sirius XM now represents an attractive equity investment. The firm said the company has no significant debt maturities until 2013, positive free cash flow and the implicit backing of Liberty Media (Nasdaq: LCAPA).
link:
http://www.streetinsider.com/New+Coverag...
hes my guess for subs–And im going to be very general here–Im long on Sirius too but lets be realistic here
1—-2ND Q subs will be down at a loss, BIGTIME–but this will be the worst quarter of the year and most likely lowest sub wise going forward for the next couple of years–Why? Historically even in good times 2nd q is slowest—All the new programs from IPhone to used car agreements wont show anything until 3rd quarter–if they do
2—OEMs bottomed last month, BK wrapping up and sales starting do increase, especially at Ford(but slowly)
3–Audiovox saying double digit increase due to sat sales(even though they werent the chief dist. last year so…..
4–could be a surprise in the earnings per share as cost cutting synergies keep on lowering expenses which could offset the sub count loss
5–You know if they actually are in the black, the media will harp on the sub loss instead
Its very hard. But not impossible. You would need other than sales data. You need production data, what cars are sitting and not sold(Ford and Chrysler), etc….
If you use the take rate, churn, and auto sales, you can get the idea. And the “idea” is its not good this quarter. So dont expect it to be.
If more cars were sold last quarter than this quarter, the number of deactivations is magnified, as new subs cannot replace them.
If this economy doesn’t turn around in the some what near future they must consider doing something positive with the build up of idle radios. They have to be getting to the point where there are more idle radios than activated. I understand and think it’s a great idea to push to activate the used car market. But down the road the de-avtivated radios will far out number the radios in use. How can this company keep absorbing this cost? So Sirius Xm has to make two radios for every one that is in use? There has to be an option to this major problem!