By Relmor Demitrius -
Sirius XM Radio (NASDAQ:SIRI), which is 40% owned by Liberty Media (NASDAQ:LCAPA), achieved something few companies in their industry, if any, did in 2009:
They came out of 2009 in better financial shape and returned to subscriber growth during one of the most difficult economic periods possible. 2009 was a troubling time for the newly merged radio companies. Huge debt obligations were due, the economy was in shambles, and the auto industry wasn’t selling enough cars.
What a difference a few quarters can make.
The satellite radio company entered the year with 19 million subscribers. After losing 500,000 subscribers in Q1 and Q2 combined, they regained 105,000 back during Q3, reversing the trend. That leaves them with around 400,000 subs under what they started the year with as of Q3.
Let’s run the numbers and see what Q4 will probably look like:
October through December auto sales totaled around 2,593,000 for the United States. Penetration rate of the company’s products in these vehicles was going to be in the high 50′s, according to Mel Karmazin, CEO of Sirius XM Satellite Radio. Im going to assume 58%. By this figure they should be adding (from the OEM channel) around 1,503,940 new subscribers, while losing around 1,053,000 from deactivations (assuming a 1.9% churn rate, lower than last quarters, but higher than Q4 of 2008). Im giving credence to improved economic conditions, but also still accounting for a supressed economy. 1.9% churn should work for this calculation. During the last 3 quarters churn has been 2.2%, 2.0%, and 2.0% respectively. Assuming 1.9% in a traditionally strong churn quarter is fully reasonable given the conditions.
So from the OEM channel alone Sirius XM Radio should gain approximately 450,385 new subscribers in Q4.
Retail subscribers will affect this total however. Last quarter SIRIUS XM Radio lost around 400,000 retail subscribers. This is due primarily to line up changes, lag in new radios, switching to OEM promo subs, upset over royalty fees, internet charges, and confusion with the merger and bankruptcy scare.
This caused distribution, innovation, and huge marketing delays. Sirius XM has now corrected all these problems.
In the 4th Quarter, Sirius XM Radio launched an advertising campaign to sell the brand more aggressively to consumers. Also heavily advertised were a slew of new radios, including the Skydock, made by Audiovox Corporation (NASDAQ:VOXX), which just noted strong satellite radio sales in their quarterly report. Reports had been circulating that Audiovox had possibly 300,000 units into the market, and expected these units to move quickly. The Skydock appears to be a strong seller, as reflected by interest in the Skydock’s software application, which is showing high download rates. It was in the top 50 free applications from Apple for months. Every download of this application would be for the sole purpose of activating the radio, so these numbers directly reflect an increase in subscriber numbers from Skydock alone. Some internet sites and retailers completely sold out of the Skydock itself.
This unit allows satellite radio to play with Apple’s (NASDAQ:AAPL) Ipod and Iphone products. Also factor in another 3 months of the iPhone/iPod application, more time removed from all those mentioned negatives to consumers, and I believe retail will finally start to settle down. This would be huge to their subscriber totals because the OEM channel is now a plus again due to auto sales rebounding nicely by the end of the year.
However, trends are trends for a reason. Until I actually see this trend reverse, I cannot assume it will simply on improving conditions of the retail market. Best Buy, Radio Shack, and other retail outlets have been aggressively marketing these products, including the Apple Store.
With all that in mind, I’m going with a loss of 100,000 retail subscribers, a huge improvement from Q3.
Economic conditions seem to be improving, and Sirius XM Radio has weathered 2009 far better than most, with almost the same number of subscribers it went into with.
Q4 total Subs. : 18,865,000 subscribers
Total gain : 350,385 new net additions
Churn : 1.9%
Penetration Rate : 58%
Self-pay subscribers will probably uptick slightly as well. These are the permanent customers who pay monthly for the product, and are not counting promotional subscribers in this total. I’m looking at still under 16 million here, but with small improvements. I am using improved economic conditions, less confusion about the company and product, and a host of new and exciting products from the company, like the recently announced XMp3i, which is a portable Mp3 player and satellite radio, the Sirius Stratus 6, which can host the a la carte packages from Sirius XM, a new Garmin/XM radio for the motorcycle, and of course the XM Skydock for the Iphone/Ipod. Audiovoxx reporting strong sales supports this theory. These are the same reason I expect the retail sector to lose less subscribers than last quarter.
My next article will be for earnings projections on Q4.
Disclosure: Long SIRI
Thanks for the tally rel. I am going to go out on a limb and say that we will see another stream of sub growth through the used car market.
This is a wild card that can only bring an upside to your numbers.
Also, the increasing number of business subs will add to the upside. While still negligible, this number does enforce product awarness.
look forward to seeing your financial numbers.
Rel
did your numbers account for the push to re-activate the millions of de-activated radios that are out currently out there. I know that when the $20 offer and the 4.99 offer came out…several friends re-activated their subs due to this promotion.
Unfortunately I cant see a way to count for it.
So, No, I havent. I also didnt account for anything substantial from the Used car market. Until I see an unexplainable jump in subs that cant be attributed to retail or new OEM promo subs, then I will take a gander at the cause, unless Sirius would be so kind as to include that type of information in the Q report. So if you feel there is some addition here, and you basically agree with my numbers, add it to that total, and look for that to be the actual sub total for the Q. Yes, definately some exciting upside possibilities to the upside on the sub total. Members of my site for instance know my posted “fun guess” total, which would be a reasonable bullish scenario.
Thanks for the prelim look at the 4th qtr. We are all crossing our fingers that it will be the best ever. Looking forward to your earnings projections!
I believe this is an honest well thought but still very conservative approach to siri sub count that may not account in full for the recent branding push and much greater siri visibility. Due to this and other factors such as ipod/iphone connection, reactivation promotion for older cars at a very low entry level of $20, etc. strongly amplifying exposure of siri to potential customers, I would safely add another 150K-200K of new customers. My tally would be between 500K and 600K additions. This is certainly an educated guess based on following the companies individually and combined for the last five years.
Nice to see someone taking a stab at the sub numbers… Thanks. I always find it difficult to use company metrics like “self pay” churn which includes all self paying subs, both Retail and OEM to come at this Q’s estimate. I think the Company intentionally tries to confuse us at times. They break down Gross Sub Adds, and Gross Sub De-activations, but do not apply it to self pay churn. Promo subs from OEM aren’t included in the churn number and quite frankly, this quarter’s promo subs are future Self Pay Subs. Last quarter we had 15.5M total self pay, with roughly 18.5M total subs. Very confusing.
Retail sales numbers showing positive this quarter alone, would wipe out a negative (309K) from last quarter which would be outstanding.. For the year retail is at a negative (980K). So your number above of 400M loss adjusted down to this # would give you a Net Zero condition by adding another 90-100K to your estimate.
OEM and Rental together last quarter accounted for a positive 412K subs, understanding this includes conversion from previous quarter promo subs, its a good base to add or subtract based on Q4 conditions. This also means that Q3 OEM adds were dependent on Q1, Q2, (ugh!) Promo Subs and those Production Subs that are immediately counted.
I mention this relmar because Q4 OEM adds will be based on Cash for Clunker promos, Prior Q’s, and New production for makers like Ford that are counted when they come off the line. So although we had about 2.5M units sold in Q4, we had 3.0M units sold in Q3 (more promo), which should impact us here in Q4.
Going into the Q4 with no drag from Retail Sales (that’s “0″ subs from this category), and an improving New Car and the Certified Pre Owned category, puts us minimally at a positive Sub Count of at least last Q’s 412K. That’s before kicking in the boosts we will get from better than expected numbers in these other auto categories.
I believe that the better car numbers and a modest growth in Retail of say 50K attributed to the Ad Campaign and good subscriber retention efforts, could easily put us to over 550K subs from this quarter alone conservatively speaking.
Add in promotions for the acquiring of never activated units, a full quarter of CPO programs coming of 3 month promos started in June 09, and giveaways for multi sub radios, and I feel we could easily get to 650 to 700K subs for Q4.
Now when you do your Revenue and Earnings don’t forget that mel said for each incremental dollar added from that $630M, Q3 number, that 70% will fall to the bottom line…. GLTA…
Very good information. Unfortunately since previous quarters do not reflect a lot of what you mention, I did not include it. I went basically with base OEM numbers, and a rational take on retail contributions.
I actually think this is the “base” of additions to work with(cant see lower really) and anything else coming into play of what you mentioned above would be gravy. I also agree that this is the quarter some effect from these avenues should show some improvement finally.
relmor,
I like very much the tone of your discussion and emotion-free fact based approach. There are a few aspects that we might still be underestimating. One relates to the retail dip driven to a great degree by the economy. Retail customers are most likely those who sought out satradio service by themselves unlike OEM customers with radios already in the car and later decide whether to keep it or not. They are also the ones who dropped out for economic reasons or were unhappy with certain things the company has done. I believe that this trend is being curbed. First, the economy impact is not as devastating as it was, say, a year ago. We may have achieved economy driven drop-out point of self correction. Second, the company introduced successful affordable after market devices such a skydock and others and new Iphone/Ipod compatible software. This is critical for the positive side because like any consumer, I would like to deal with inexpensive devices and free installation that I can do by myself without much hassle. I believe we may not be 100% there but definitely are in much much better condition. We may be at a qualitatively new company brand awareness level due to company branding effort, new after market devices, Iphone/Ipod exposure, higher OEM installation rate and certified preowned market where satellite radio is becoming a necessity and great fun rather than treating the range of $7 to $19 a months as discretionary spending, or luxury. All these major reasons combined with hard facts and new qualitative condition of the comapny allow us to conclude that Q4, 2009 and all 2010 will show a tremendous momentum in subscriber growth and revenue/profit. This is why, using your math and the factors above, I would conservatively forecast Q4 net additions above 500K.