Chrysler's Sirius Impact Could Include Better Times Ahead

With the clock ticking on Chrysler to solve their debt woes, investors in Sirius XM (SIRI) have something to think about. Chrysler was a major player in the OEM channel for Sirius over the past few years, but slow sales and slowed production have diminished Chrysler’s contribution to the subscriber roles.

Different OEMs have different deals, and the way OEM subscriber counts are tallied also differs. Sirius XM counts vehicles for which they receive payment as a subscriber. This is the case whether the payment is from the OEM or the end user. Because Sirius XM receives payment from Chrysler at production, the subscription is counted prior to the car being sold to an end user. This would help boost subscriber numbers, but the trade off is a lower ARPU (average revenue per user). The reasoning is simple. The 1 year subscription that the end user receives from a Chrysler brand product does not start until the consumer buys a car. The payment received for the subscription from Sirius XM is booked as deferred revenue. Deferred revenue is a liability, and does not switch to revenue until the service contracted is delivered. Because cars do not roll directly off of the assembly line and sell, there is a period of time when cars will not show any revenue and thus the ARPU is impacted.

ARPU is the average revenue per user. If 400,000 Chrysler brand cars are in transit to dealers, or sitting on dealer lots, they are being counted as subscribers, but are impacting ARPU because none of these vehicles would be generating revenue as yet.

At the end of February, Chrysler’s inventory represented a 151 day supply. Chrysler was second only to GM with a 161 day supply. To give perspective, the Chrysler supply on January 1, 2009 was 115 days. With consumer confidence in failing auto companies likely low, Chrysler sales have been hard to come by. Even with slowed production, the inventory at Chrysler seems to be increasing.

The Chrysler deal has always been cash-flow friendly:

1. Sirius XM pays a subsidy for a radio installation - Cash Out
2. Chrysler buys a one year subscription - Cash In
3. 45% to 55% of those subscribers become self paying

Sirius XM could literally re-invest the cash they receive from Chrysler into more radios. Regardless of what the consumer does, each radio has had a 1 year subscription paid for, thus offsetting costs associated with the installation. If the Chrysler subscribers become self paying, the company - as well as Chrysler - gets a better return. If the Chrysler subscriber does not become self paying, the company at least got a 1 year subscription paid for.

Compared to the GM deal, the Chrysler deal is very SDARS friendly because of better returns on the investment into radios, combined with lower revenue shares. Should Chrysler falter Thursday, there will be an impact on subscriber roles, ARPU, SAC (subscriber acquisition costs), deferred revenue, as well as revenue.

Previously, SiriusBuzz spoke of the changing landscape in auto sales. In that piece we focused on the GM side of the equation. This piece focuses on Chrysler. The bottom line is that if sales of these two brands fall off, and are replaced by other brands with more favorable deals, Sirius XM could see a substantial shift in many metrics. It is something investors should watch for.

In terms of subscribers, because of slowed auto production and sales, investors should be prepared for a negative subscriber number with the Q1 announcement. In Q4, the de-activations were 1.6 million with net subscribers added being about 80,000. There is no possible way, given the auto sales trends in Q1, that the company will report positive subscriber numbers. Investors should be prepared for de-activations in the neighborhood of 1.65 to 1.75 million. While this is bad news, there will be metrics where the street will see marked improvement. This will allow investors to look forward to the return of steady auto sales and consumer confidence. If Sirius XM can weather the next few quarters, there is potential for good times ahead.

Position - Long Sirius XM, No Position OEMs

Comments

[connorport:]

I say when they offer a free service that they get a first year 100 million sub surge. Out of that if only 10% upgrade and add the premium that would equate to about 1.5 billion in increased revenue off of subs alone. You would also increase your add price by triple because you now have Half of the country listening. Its definitely uphill from here unless someone can convince me otherwise which i haven't heard yet.


On May 01 06:00 PM Neal Barkett wrote:

> connorport & relmor, I gotta believe if & when they annouce
> that they are going w/ some type of free commercial based format
> with some specifics this stock is gonna pop big time. It tortures
> me to know that there are 10-15 ? million sat radios unused but paid
> for, it makes me sick. With past & present churn how many more
> become idle every month? I'm an efficency nut and hate to see waste
> and that's what I'm seeing. Tyler has educated me in the past that
> advertising dollars are hard to come by in these economic times.
> But couldn't that be looked at as a positive. You could come into
> the commercial based format at a price that terrestial radio could
> not compete on a NATIONAL basis. Your going to appeal to the fortune
> 500 companies and of course the local vendors will stay with traditional
> radio. What does it cost to advertise a national product on all the
> different stations across America. I can't believe Mel has not taken
> advatage of this concept. Could you imagine the hype "SIRIUS XM is
> NOW OFFERING FREE SAT. RADIO" just the free publicity & buzzing
> alone would get people to pay attention and start asking questions
> about Sat Radio. I'm telling you if done right it would be as big
> if not bigger than when Howard Stern annouced his jump to Sirius.
> Look what that did to the stock and it was over a year before he
> came aboard. This would be the 1st real step in educating the general
> public what Sat Radio is period! Remebers Mel's battle cry during
> the fight for the merger "HOW DO YOU COMPETE WITH FREE"?

May 01 06:10 PM

[connorport:]

Another reason why is that they are hopefully restreaming all of the XM platforms to SIRI's so they can make this offering. Some think that when the debt came due that this had not quite been accomplished yet and will be soon. This may be soon be the reality that will essentially put terrestrial radio to broadcasting local weather and news only. These things will probably happen simultaneously including the alleviation of nearly all of the debt. Then were talking $2-4 a share without the Liberty dilution which will probably not happen as it would dilute Liberty's value as well and possibly not keep them with the chips they need to make deals with the largest media entertainer in the world.


On May 01 06:00 PM Neal Barkett wrote:

> connorport & relmor, I gotta believe if & when they annouce
> that they are going w/ some type of free commercial based format
> with some specifics this stock is gonna pop big time. It tortures
> me to know that there are 10-15 ? million sat radios unused but paid
> for, it makes me sick. With past & present churn how many more
> become idle every month? I'm an efficency nut and hate to see waste
> and that's what I'm seeing. Tyler has educated me in the past that
> advertising dollars are hard to come by in these economic times.
> But couldn't that be looked at as a positive. You could come into
> the commercial based format at a price that terrestial radio could
> not compete on a NATIONAL basis. Your going to appeal to the fortune
> 500 companies and of course the local vendors will stay with traditional
> radio. What does it cost to advertise a national product on all the
> different stations across America. I can't believe Mel has not taken
> advatage of this concept. Could you imagine the hype "SIRIUS XM is
> NOW OFFERING FREE SAT. RADIO" just the free publicity & buzzing
> alone would get people to pay attention and start asking questions
> about Sat Radio. I'm telling you if done right it would be as big
> if not bigger than when Howard Stern annouced his jump to Sirius.
> Look what that did to the stock and it was over a year before he
> came aboard. This would be the 1st real step in educating the general
> public what Sat Radio is period! Remebers Mel's battle cry during
> the fight for the merger "HOW DO YOU COMPETE WITH FREE"?

May 01 06:37 PM

[boston 1:]

s162 I have to agree with most of what you say about the nay sayers. If I had listen to the morons that do not believe in this company the $5000 I bought at the around .06 would have been my biggest regret to date. However I got scared and sold at .24 but was glad when I was able to buy back in at .19 believe me I have not been scared since. Will not lie I did sell 1/3 of my position at .54 after it went to .63 but bought back at .40 a couple of days ago not great trades by all mean but not regretable ones. Staying long until figures come out in a couple days. As a mathematician the numbers say one thing to me but peoples actions which can not be calculated always speak volumes. When everyone screams red go blue and when they say sell, buy more. It has worked for me so far and I believe SiriusXm is going to pop, really pop. Liberty would not have put all those millions on a horse that can not run.

May 01 10:45 PM

[I'm Not Jim...:]

Boston, you've done brilliantly because intentionally or not you've been renting the horse instead of buying it. If the horse dies, that's somebody else's problem. I don't understand what you mean by "not great trades". OF COURSE they're great trades! Only the idiots who think Sirius is a religion and not a stock would fault you for you apostasy. Doesn't matter what Liberty says or does with their horse, because they're riding an entirely different animal than the common shareholders on this board.

Hey, about the subject of this thread, and at the risk of being known as Mr. gloom and doom. Chrysler is going down, period, probably no later than 2011. They have bought time because the government is worried about Michigan becoming the real life equivalent of "Escape From New York". Why on earth anybody would think a marriage of a minor international auto company, Fiat, and a minor American auto maker, will work is beyond me. The best part is the government is going to dictate that they now make small cars that Americans will not be looking for when they hit the market at the END of the recession. Oh well, not my money. lol

May 01 11:51 PM

[I'm Not Jim...:]

Hey because it's the weekend, allow me to open myself up for roasting, by writing this. Probably less than 10-20% of the people on these boards either understand, or are just willing to admit why they made money this year. Contrary to popular opinion, you didn't make money because Sirius is a good company "poised to take off" or any of the other similar comments. Putting aside any discussion of the future of satrad, you made money THIS year because Siriis is a TERRIBLY run company that came within a whisker of bankruptcy and survived. Investors didn't wake up and say "oh yeah, how about that Mel Karmazin, he drove a loss of shareholder value of about 75-90% during his time in charge. Can't WAIT to invest with that guy!" Every company still in business has an intrinsic value. When Sirius stayed in business, the dollar debate about what that intrinsic value began. Currently the market seems to think it's between .35, probably the floor, and .63, gravy time for shorts. So pleeeeeeease, spare me the: ready to post a profit, cash flow positive, millions of new subcribers, a billion new revenue, gonna make money from aircraft pilots and boat captains, crazy talk. Terribly run companies are often great places to make money. For reference, see any company Donald Trump has ever run (he certainly made money before they went bankrupt. lol)
Trade now, trade tomorrow, trade forever!

May 02 12:35 AM

[I'm Not Jim...:]

Oh, one last thing. I LOVE the idea of starting a free service with commercials. After all nothing says "we have the superior service" better than imitating your supposedly dead or dying competitor, right?

Isn't that what cable tv did years ago when had that two tier service one free with commercials and one premium . . . never mind.

Well that certainly has worked to make Net Zero the . . . leading . . . most profitable . . . internet . . . provider . . . hasn't it?

Hello, anybody out there?

May 02 12:45 AM

[jamesc:]

This is a screwy stock get out and invest in somthing like DTG, DAVE, or CAKE.

May 02 03:26 AM

[jamesc:]

DTG, CAKE, DAVE, KMX, MSFT, GOOG, AAPL, TTM, F, and PIR are all better companies to invest in this thing will screw you over and take your soul away SIRI is the devil Satin worships this stock, get out the government wants this company sent to hell its the devil.

May 02 03:30 AM

[jamesc:]

DTG, CAKE, DAVE, KMX, MSFT, GOOG, AAPL, TTM, F, and PIR are all better companies to invest in this thing will screw you over and take your soul away SIRI is the devil Satin worships this stock, get out the government wants this company sent to hell its the devil.

May 02 03:31 AM

[jamesc:]

This company pays Mel Karmazin, Howard Ster, Oprah, Playbay, NFl, NBA, NHL, NCAA, Nascar, MAXIM, CNN, FOX, Satin, Etc. This company pays everyone millions of dollars for doing nothing I have watched this company for years and have seen no PROFIT. They are paying everyone millions of dollars for sitting down at a table and talking about nothing they are fools. If you think you can make profit on this stock you are chasing fools gold. They pay everyone every dollar they recieve they never save one pennie for the shareholders they wnat everyones money but they don't want to repay anyone back.

May 02 03:38 AM

[jamesc:]

This company is a great spender of other peoples money. They don't care about making a profit they are like GM.

May 02 03:43 AM

[jamesc:]

This company is a great spender of other peoples money. They don't care about making a profit they are like GM.

May 02 03:43 AM

[jamesc:]

This stock shot up to about 9.30 back when they announced Howard Stern coming onto the air ever since it has done nothing but go straight down the tail pipe, if stern had nuts he would invest his own money into this company they have payed him everything that they have earned about 1 Billion into Sterns pocket book, I compare this to Alex Smith and the 49ers. Howard did to Sirius what Alex Smith did to the San Francisco 49ers.

May 02 03:54 AM

[I'm Not Jim...:]

James: Careful, it's not a religion, and it doesn't steal your soul. ( see above) It's just a poorly run company that you should only invest in if you have the stomach for intense speculation!

May 02 09:24 AM

[wholesalecd:]

Debate you one what????? There's NOTHING TO DEBATE. The only thing we can do is wait and see. Things that are debatible are such things as Global Warming and the War in Iraq.

I'm not sure what you want to debate here but let me know and if I think it's worth my time we can go at it.

Jay Boy Billy


On May 01 12:20 PM relmar2003 wrote:

> wholesalecd, If you want to debate me, and i know you wont, Im right
> here. Come with facts. Or dont come at all. You will be embarrassed.

May 02 08:38 PM

[wholesalecd:]

James....Please snap out of your MANIC EPISODE. It sounds as though you have lost mucho $$$ from investing in this company.

You say you have just "followed" them but if that was the case you wouldn't be ranting like a loose cannon.

Jay Boy Billy

May 02 08:44 PM

[burnout:]

Billy Boy you must have nothing but time to be in here talking to yourself on a Sat. night.
Me I got lots of time till the hay get knee high but have no desire to debate anyone.
You better be prepared cause your going to end up like Kimbo Slice.
Have a nice weekend!


On May 02 08:38 PM wholesalecd wrote:

>
> Debate you one what????? There's NOTHING TO DEBATE. The only thing
> we can do is wait and see. Things that are debatible are such things
> as Global Warming and the War in Iraq.
>
> I'm not sure what you want to debate here but let me know and if
> I think it's worth my time we can go at it.
>
> Jay Boy Billy

May 02 09:07 PM

[wholesalecd:]

Too much time on my hands????.....No, there's WiFi everywhere these days so i'm always connected.

I was never a fan of Kimbo Slice....Loved seeing him get his ass kicked...

As for Siri XM we ALL will just have to wait until the numbers surface on the 7th.

Jay Boy Billy

May 02 10:00 PM

[wholesalecd:]

Sly62, I have to DEBATE you on your statement where you said,

"You don't just offer 530M to a company that sucks and is heading in the wrong direction. What do you think wholesale?"

There have been many huge investments that have gone in the WRONG DIRECTION and therefore the investor(s) lost mucho $$$.

Even Buffet has lost big money on investments that make the Liberty deal look minute.

Jay Boy Billy




On May 01 02:11 PM sl62 wrote:

> hey wholesale...
>
> I see you're still around mindlessly trying to get people to sell
> their shares! Nothing else better to do? Or what, you're an inst.
> short or what? You were pulling the same junk when the SP was .13...look
> how right you were then!! Anyone here relying on wholesalecd's "sound"
> (heavy quotes) investing advice is a fool. He was telling everyone
> to sell their shares because the company was going BK. Good call
> cd!
>
> Connor...good points about the bondholders and it goes even farther
> than that in Malone and Liberty. No sane person would believe he
> was not apprised of Q1 progress in Feb and early March. You don't
> just offer 530M to a company that sucks and is heading in the wrong
> direction. What do you think wholesale? Any comments about that?
> Further so what if subs are a little light this time (if they even
> are because they have a better chance of being flat to slightly up)...
> what, you think the Street is going to take this SP out back for
> down subs in one of the most challenging market conditions in decades?
> When it's already down in the basement @ .38? Wake up. You obviously
> haven't been reading all of April's earnings releases. The Street
> looks forward right now my friend not back. Mel and Co. have plenty
> of fire power in this and every subsequent Q going forward to offset
> any slight issues. And I said slight. There will be no major misses
> here. Further, he knows what he's doing by focusing on being EBITDA
> positive Y/E. That's the bar he's set and he knows he can meet it.
> So do I. Why because it gives him control over the things he CAN
> control. Smart.
>
> Let's don't forget..because I don't.. how many were saying Q4 would
> not only suck but also show their first subs loss. Didn't happen.
> I look forward to a quite adequate Q with enough continued signs
> of growth to satisfy the critics. Certainly not any reason to go
> dumping shares because some nut-job tells you to. But if you really
> want to, go ahead. There will always be wholesalecd's out here giving
> you bad advice about SiriusXM.

May 03 02:59 PM

[wholesalecd:]

BUT PEOPLE AREN'T RUSHING OUT TO BUY SIRIUS SUBSCRIPTIONS. Are you one of those that paid $1000 for the blackberry???? It always makes me laugh to hear about people waiting in line for many hours for a new product and then pay 8 times what it's worth. Just like the new Wii. All these people were waiting outside Best Buy for over a day before it hit the store. These people need some SIRIUS help.

Jay Boy Billy


On May 01 11:27 AM connorport wrote:

> If everyone had the attitude that this doesn't work just look at
> what people want. I did a study for myself on Research in Motion.
> When the Blackberry Storm was released, i thought in my mind this
> would be a perfect comp to Apple's IPhone. I checked out Ebay for
> them to arrive there and they were hitting $1000 for an unlocked
> Storm. The same buzz and prices that came with the IPhone. At that
> time RIMM was trading around the $38 mark. Their stock has since
> ran to over $70.
> My point here is i would take a same comparison to what i see will
> happen to this stock. People obviously want the product even in a
> recession when things are tight. Just like the Storm. The only difference
> here is that this stock has been driven to near nothing so the potential
> here to make a 200-1000% quick recovery is right around the corner.
> If and only if SIRI follows market rules of movement.

May 04 10:59 PM