Tuesday, December 05, 2006

Is Sirius' Guidance Still Too High?

Satellite Radio TechWorld would like to start by saying that it isn't picking on Sirius. We are simply looking at the numbers. Not much consideration has been given to XM. XM's guidance is so low that it should be a cakewalk. Shame on XM if they miss guidance.

To hit the low end of their guidance, 5.9 million, Sirius will have to garner 780,692 net subscribers. If the previous churn estimates prove to be correct, then Sirius will have to gross 780,692+370,000=1,150,692 subscribers. Last quarter, Sirius grossed 732,406 subscribers. Therefore, Sirius will have to increase gross subscribers 57% in the fourth quarter. Granted, Sirius typically gets a bump in OEM adds in the fourth quarter and it has spent a lot of money on marketing and hardware is sufficiently cheap, but 57% quarter over quarter is huge. XM increased its gross last year this time by 37.7%, and that was a very good year for XM. This year, sales are dismal for satellite radio. Pulling a number out of the air, let's say that Sirius increase the gross over last quarter by a third. That should be generous. That would put Sirius' gross adds at 976,541. Take away 370,000 for churn an the net ends up around 606,541, well short of 780,692. There might be an addition bump of 100,000 OEM subscriptions and the churn could be off say 30,000 subscriptions. Adding this in, we arrive at 736,541 subscriptions.

We are inclined to believe the low end of Sirius' guidance with a possible miss. A range of 5.7 to 5.9 might have been a better guidance. Of course, this late in the game, they should have a much better idea of where the range will fall. However, I note that they lead off their PR taking about how the added 500,000 subscribers in the last 10 days last year. That simply isn't going to happen this year, nothing even close to that. However, it is possible that the Big Boxes will start dumping hardware after Christmas, maybe even before, which will add subscribers, but will give a false indication of the actual number, as XM found out last year.

We would prefer to be wrong. Alternative views are welcome.

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4 comments:

jeff said...

I have said and put it out there before that XM will get about 680,000 and sirius in the area of 940,000. However one thing I did not take in to account is chryslers cut back in production. I factored in about 100k more factory installs but rather than that chrysler cut Q3 production by 45,000 units and Q4 by an additional 30,000 or a total of 120,000 units, how many would have had Sirius? 25-30%? Now the unknown factor. Stern Crurn, How many of those Visors are being replaced by a decent receiver? How many Receivers were given as gifts with a 1 year subscription? So.. Although I think its really uncertin where sirius lands this Q, I think (and hope for SAT RAD) that your off a bit.

Bert said...

Jeff, as a Sirius shareholder, I hope that I am way off target. Sirius is a year or so behind XM. This quarter for Sirius is much like the quarter for XM last year at this time when XM grew gross subscription by nearly 38%. My feel is that it is a bad market for satellite radio this quarter, although recent reports are encouraging. It is hard for me to justify 38% increase for Sirius this year, let alone 57%.

The lower end of guidance, 5.9 million, could still be a stretch. I would have preferred that Sirius make it a cakewalk and put it at 5.7 million. I would rather risk a surprise to the upside.

Let's hope that after the public purchases their HDTVs, they come back to satellite radios as stocking stuffers.

ssg5 said...

Hi, Bert. Good post. On what did you base your conclusions? Did you survey retail locations, or did you look at oem production cutbacks?

Bert said...

SSG5,

I didn't look at OEMs at all. That is something that is hard to judge and is always a wild card. Particularly in Sirius' case, the OEMs can come in spurts. It was a large contributor to Sirius' gross last quarter. I can't make an intelligent judgements about the OEMs. You guys do a much better job at that.

I'm trying to compare Sirius to XM one year ago. There are a lot of similarities. Sirius has a similar number of subscribers as XM had in 3Q05. They had an aggressive goal. but didn't have much of a driver. The biggest difference is that that the market was strong last year. This year, the market has dwindled. Third quarter gross for XM in 2005 was in the order of 1 million. For Sirius in 3Q06, it was 732,406. The market just is not what it was in 2005. I don't think the seasonal bump will be as great either. The boots on the ground reporting from those such as Ariel indicate that sales are not that much stronger that the third quarter. Last year, XM ended up with a little over 5.9 million. Sirius is a 100,000 or so subscription closer, but the market is extremely soft.

It's hell when the bottom of the market falls out just when the churn monster starts raising its ugly head. Its a deadly combo.

To answer you question, it is based more on observations than on facts.