Sirius XM (NASDAQ:SIRI) reported its Q3 2011 earnings recently, and it seems that the company’s business is robust despite economic headwinds. While on one hand the company talked about how adverse the economic environment was in Q3, on the other hand it emphasized that it is on track to achieve its subscriber and revenue guidance for the year 2011. While new car sales from companies like GM (NYSE:GM), Toyota (NYSE:TM) etc. are definitely driving subscriber additions, the company remains committed to increase its partnerships with dealers of pre-owned vehicles and drive penetration.
Our price estimate for Sirius XM stands at $2.11, implying a premium of close to 20% to the market price.
See our full analysis for Sirius XM
Sirius XM Optimistic for Q4, May Need To Improve New Car Conversion Rate
The company will need to add about 440,000 subscribers in Q4 in order to achieve its guidance of 1.6 million net subscriber additions for 2011. This is optimistic given that Sirius XM achieved only 6% growth in net subscriber additions for the 9 month period ending in September 2011, compared to same period last year, and needs 34% growth for Q4 to reach the 1.6 million target. [1] This growth will come from automotive subscribers since retail base has seen a decline.
What could enable such growth?
Perhaps the holiday season and potential introduction of new models from several companies can prompt higher car sales, which in turn, can impact Sirius XM’s subscriber additions positively. Some reports mention that economy is slowly dragging itself out of the slump, and that U.S. consumer confidence is rising. [2]
Nevertheless we believe that Sirius XM’s new vehicle conversion rate may need to improve from current 44% if it has to hit its guidance target. [1] This figure is representative of customer stickiness and mix of car models, because different vehicle models have different success rates for the satellite radio company.
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Notes:- Sirius XM’s Q3 2011 Earnings Transcript, Seeking Alpha, Nov 1 2011 [↩] [↩]
- U.S. Consumer Confidence Rises in Sign Americans Will Keep Recovery Intact, Bloomberg, Oct 28 2011 [↩]
