December unit sales for light vehicles in the U.S. will amount to more than 1.2 million, registering growth of nearly 25% over November sales and about 8% growth over December 2010 sales. [1] Despite this improvement, overall Q4 2011 auto sales haven’t really registered the kind of growth that would point to Sirius XM (NASDAQ:SIRI) meeting its annual subscriber guidance for 2011. Sirius XM’s stock is highly dependent on the company’s ability to gain automotive subscribers by entering into partnerships with automotive manufacturers such as GM (NYSE:GM) and Ford (NYSE:F). Looking at the overall automotive sales, it still appears that Sirius XM will have a hard time meeting its subscriber guidance.
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In order to meet its full year subscriber guidance, Sirius XM would need to add about 30% more subscribers than the 334,000 additions recorded in the third quarter. This further translates to growth of about 34% over Q4 2010 net subscriber additions. That is a substantial boost no matter how you look at it. The question is – what are the chances that the company achieves this target?
If we compare Q3 auto sales numbers to estimated Q4 auto sales numbers, as shown in the chart above, it appears that Q4 sales will grow by just about 2%. This 2% sequential growth implies that almost all of the 30% sequential growth required in net subscriber additions will have to come from Sirius XM’s own efforts, and global economic conditions are certainly not doing the company any favors. The company will need to seriously increase its auto penetration, depend even more on used car sales, and extend attractive promotional rates to attract subscribers.
Even if the company does meet its subscriber target, which we do not expect it to do, it would likely impact Q4 revenues due to the promotional offers that it would likely require.
Our price estimate for Sirius XM stands at about $2, implying a premium of nearly 20% to the market price.
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Notes:- Sirius XM Radio (NASDAQ:SIRI) and December Auto Sales: Highest Unit Sales Since March 2011 According to TrueCar, Satellite Radio Playground, Dec 27 2011 [↩]
