About a week ago, Sirius XM (NASDAQ:SIRI) C.E.O. Mel Karmazin reiterated subscriber guidance. On Monday, Sirius XM C.F.O. David Frear presented at the UBS (NYSE:UBS) Media Conference, and restated again the company’s year-end subscriber guidance. Despite both of these Sirius XM officials reiterating guidance, not a day goes by without some blogger posting an article calling into doubt Sirius XM’s ability to meet its guidance.
Let me show you in detail how the bloggers are wrong, and Sirius XM management is right. All signs continue to point to Sirius XM meeting or beating the 442,000 net subscriber additions it will need to attain to meet its guidance. Unfortunately, the bloggers apparently suffer from laziness. It may surprise you to learn that Sirius XM does not report fourth quarter subscriber results. Rather the company reports full-year results. In order to figure out how many net subscriber additions were achieved in the fourth quarter, one must subtract the third quarter historical data from the full year data. Good news….I have done that for you.
- 2008 fourth quarter net additions = 82,945
- 2009 fourth quarter net additions = 257,028
- 2010 fourth quarter net additions = 328,789
- 2011 fourth quarter guidance = 442,000
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Much of the negative focus has been placed on an incorrect assumption that auto sales are flat, and that auto sales will have to come in at very high levels for Sirius XM to achieve its guidance. Completely ignored, is that December auto sales are historically much higher than September, October & November. Already 2011 fourth quarter auto sales have outpaced 2010 fourth quarter auto sales, which implies growth for Sirius XM also.
Auto sales for the current quarter should come in around 3.2 to 3.3 million, ahead of the 2.9 million reported one year ago. Again referencing the chart above, some basic quarterly math on auto sales indicates approximate quarterly sales of:
- Q1 2011 =3 million
- Q2 2011 = 3.1 million
- Q3 2011 = 3.15 million
If nothing else, these numbers prove the futility of relying on auto sales alone, as a barometer of Sirius XM’s potential subscriber additions. When we zoom in to Sirius XM’s posted results thus far this year, the rationale that auto sales without regard to auto production or economic factors, borders on the inept.
- Sirius XM Q1 Net Subscriber Additions = 373,064, churn rate 2.0
- Sirius XM Q2 Net Subscriber Additions = 452,147, churn rate 1.9
- Sirius XM Q3 Net Subscriber Additions = 333,683, churn rate 1.9
As you can see, in the second quarter of this year, Sirius XM reported a greater number of net subscriber additions than it would need to report in the current quarter. Not only did the company report good results, it did so in the face of weak economic data, a Japanese Tsunami and flooding in Thailand which devastated the the economy and auto supplies. The Asian automakers are still facing some supply issues following the Thai floods, and the Big 3 are now positioned for the Holiday rush as December demand begins.
Economic data this month is positive, consumer spending and sentiment is positive. Sirius XM has begun Latin broadcasting which should help to reduce churn. There are new retail products available, and Sirius XM is aggressively marketing this holiday season. Make no mistake. Sirius XM is on track to meet or better its numbers. In the words of Greg Maffei from just one month ago at the Liberty Media conference, Sirius XM issues guidance that it can comfortably beat.