It is the middle of March and therefore time for a quick look at the auto sector and what can potentially happen in terms of auto sales for not only the month, but the quarter as well. For investors in Sirius XM (NASDAQ:SIRI) this is important because it is through car sales that most consumers experience satellite radio.
The good news for long term investors is that March of 2013 may be the first time in years that 1 million satellite radio equipped cars can be sold in a single month.
According to sector analyst Jeremy Anwyl of Edmunds current sales pacing is such that 1,470,000 could be the tally for the month. Through company filings the penetration rate of satellite radio installations is about 67%. Simply stated, satellite radios are installed in roughly 68% of new cars sold. If we apply 68% to 1,470,000 the total for satellite radio equipped cars would be 999,600, or pretty close to 1 million.
What we are seeing here is a pace that can deliver a substantial number of potential subscribers for Sirius XM. Investors need to bear in mind that not all of these cars will be counted in the gross additions number. All cars sold by Toyota, Nissan, Hyundai, and Kia are not counted as subscribers in the company totals. These 4 brands account for about 33% of the market.
Should auto sales come in at 1,470,000 for March the total for the quarter would be about 3,703,000. This would be about 6.7% above the pace of last year when Q1 delivered new car sales of 3,469,000. In Q1 of 2012 Sirius XM delivered 404,000 subscribers. While doing straight line math is tempting, it does not really serve the investor well. On a straight line basis we could assume Q1 2013 net additions of 432,000 subscribers. However, there are some distinct differences between last year and this year that impact the number both positively and negatively. We have greater penetration in the used car market on the positive side as well as higher new car sales. On the negative side, the conversion rate in Q1 last year was 45% vs. 44% in more recent reporting. We also have the churn being based on a higher number of self pay subscribers. These are all things to consider if you want to delve into the more minute details.
The bottom line here is that what investors will want to see is subscriber additions within 5% of last year's 404,000. This would be good performance for the company given that there are both lifters and drags on the data. In my opinion, if the company can hit 425,000 or more it would be a very positive indication of meaningful traction in areas such as the used car channel.
There are a few items of notes for investors in Sirius XM to consider. Sales could possibly surpass a psychological level of 1.5 million. That could likely generate some very positive headlines for the auto sector which could trickle down as a positive for Sirius XM as well. Secondly, the traction in the auto sector on a general basis is proving that it is indeed viable and could well be lasting. Thirdly, IF (and this is a big if) there were 1 million satellite radio equipped cars sold in March it would make a pretty nice press release for the company bolstering both the new car sales as well as the potential that the used car market can deliver in a longer term. Stay Tuned.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.