Sirius XM (NASDAQ:SIRI) is going to report its Q3 2011 earnings next week, and despite the state of economy, we expect the company’s growth to continue. To understand what to expect in the upcoming release, we need to understand what defines Sirius XM’s business. The company has ties with automotive manufacturers such as Ford (NYSE:F), GM (NYSE:G) and Toyota (NYSE:TM) and installs its radio equipment in automobiles.
While the automobile subscribers are not the only source of revenue, the are by far the biggest source and the company’s prime focus. The retail subscription base has been coming down. Therefore, automobile sales, which are tied to state of economy, are the biggest factor in determining Sirius XM’s financial results.
Our price estimate for Sirius XM stands at $2.18, implying a premium of more than 20% to the market price.
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Auto Sales Don’t Look Too Bad, Expect Healthy Automotive Subscriber Gains
Despite weak economic growth, automobile sales haven’t done badly and that bodes well for Sirius XM. September sales were good, and the outlook for overall year looks pretty good given how the economy and stocks have performed.
Even if sales remain flattish as predicted by Automotive-Compass, the increased penetration in cars will allow Sirius XM to grow. Therefore we expect continued subscriber gains this quarter and maintain our healthy 15% overall subscriber growth expectations for the whole year as of now. Investors should stay tuned for growth in automotive segment and outlook for remaining year, and for 2012, that the company might provide during its earnings release.
Sirius XM is not just relaying on new vehicle sales, but also making use of used vehicles to expand its base.
We want to remind investors that the impact of launch of Sirius XM 2.0 will not be visible in the upcoming Q3 results. Also, the pricing change that the company announced sometime back, will be applicable next year. Consequently, the single most critical thing to watch out for in the upcoming earnings will be the outlook for automotive sales in the U.S. and Sirius XM’s efforts to increase penetration.