By Brian “Newman” Rayl
While the media focuses on the potential for a double-dip recession and a depressed economy, advancements and improvements are quietly being made in several sectors. The automotive industry is one such sector that is quietly, albeit slowly, improving. A great way to play the improving auto sector is through Sirius XM (NASDAQ: SIRI) Radio.
While this quarter saw auto sales fall slightly quarter-over-quarter, that is a normal phenomenon for this time of year. Automakers are still maintaining good numbers going into the end of the year, and Sirius XM is going to benefit nicely because of it. A trend has developed in both the months of July and August where the top sellers have been luxury brand vehicles like Tata Motor’s (NYSE: TTM) Jaguar and Porsche, as well as large SUVs and pickup trucks, such as the Ford (NYSE: F) F-150. These luxury model sales are inherently positive for Sirius XM, because they have a higher take rate and penetration rate — meaning they generate more subscribers.
In the second quarter of 2010, automakers sold a total of 3,068,723 vehicles, which resulted in a total of 583,249 subscriber additions for the quarter. Unfortunately, economic factors are going to play into the subscriber additions for the third quarter. Starting in July 2009, the United States government implemented the “Cash For Clunkers” program, which pushed lower priced, fuel efficient vehicles in exchange for a government stimulus. The biggest sellers were vehicles such as the Toyota (NYSE: TM) Corolla and the Honda (NYSE: HMC) Civic, which only have 3 month trial subscriptions, but other high sellers, including the Ford Focus, Ford Escape, and the Dodge Caliber, all come with 1 year trial subscriptions. None of these vehicles are considered high take-rate vehicles, meaning there could be an impact to increase churn when many of these trial subscriptions came to an end this quarter.
We do know however that Sirius XM is going to have some substantial subscriber growth. During a speaking engagement at the Bank of America (NYSE: BAC) Merrill Lynch conference, Mel Karmazin stated multiple times that penetration was increasing and churn was decreasing. Then while speaking at a Liberty Media (NASDAQ: LMDIA, LCAPA) conference, Mel Karmazin announced that the company was raising their subscriber guidance for the year, stating that they would add a total of 1.3 million subscribers for 2010, bringing their total year-end 2010 subscriber count to 20.1 million. The company has already added 754,690 subscribers for the first half of the year, meaning they need to bring in 545,310 for the rest of the year. As long as auto sales don’t nosedive completely, there is no way they don’t meet their numbers.
Third quarter auto sales totaled 2,995,920, a decrease of 72,803 from the second quarter. My projection is that the company is going to bring in around 375,000 subscriber additions for the quarter, bringing them just below the 20 million subscriber mark and easily in a position to blow away their own updated subscriber projection.
Disclosure: Long SIRI
Contact the author at Newman@SatelliteRadioPlayground.com
