It is mid-month and time to look at the expectations on auto sales as they relate to Sirius XM (SIRI) Satellite Radio. Sirius XM derives its most prominent exposure to consumers when a new car is purchased. Just under 70% of new cars sold in the United States today are equipped with a satellite radio and all of them offer a promotional subscription to the service. Sirius XM is successful in converting about 44% of the promotional subscriptions into self paying subscriptions.
Because new car sales remain the primary exposure for consumers, tracking the ebbs and flows of the auto sector is a prudent exercise for investors. Understanding some of these numbers before each quarterly report, or even ahead of the street, can give investors an advantage.
Thus far April seems to be pacing well, but there are a few wild cards in the mix. Consumer outlook on the economy is not quite as robust as a month ago, and tax day could impact car buying decisions. In addition, the country was rocked by the Boston marathon bombing and manhunt, as well as the fertilizer plant explosion in Texas. According to Edmunds analyst Jeremy Anwyl, April is showing a possible SAAR of 15.4 million, just ahead of the 15.2 million SAAR we saw in a record breaking March.
While SAAR is an overall measure to track forward looking expectations, it is the actual units sold, and what category they are in that matter most to Sirius XM investors. For April, new car sales are currently pacing at about 1,333,000. This is about 110,000 units less than March, but an impressive 150,000 units better than April of 2012. The important factor to notice here is that the beginning of the second quarter seems ready to start off the way the first quarter did in that the year over year jump is approaching 15%.
Sirius XM garners subscribers in three distinct categories from new car sales. Not all promotional subscripts are created equal. The "Leading" category represents promotional subscriptions that are paid for, and thus counted, at the time of production. This category represents about 38% of new car sales. The "Point-Of-Sale" category represents paid promotional subscriptions that are counted at the time a new car is sold. These are counted as subscribers at that time, and represent about 31% of new car sales. Lastly, there is a "trailing" category, which are unpaid promotional subscriptions. These are not counted as subscribers unless the consumer elects to keep the service after the promotion ends. The "Trailing" category makes up about 30% of the market.
Here in 2013 there will be a few shifts investors should be ready for. Beginning in Q4 of this year, GM will shift from the "Point-Of-Sale" category to the "Trailing" category. That will bring the "Point-Of-Sale" category down to less than 15% of the total market and increase the "Trailing" category to over 45%. Another change was a switch by BMW to move to a 1 year promotional subscription rather than the current 3 months subscription. Longer deals help mitigate churn and offer more consumer benefit.
The bottom line is that auto sales remain at a strong pace. While this is a positive for Sirius XM, there are no real surprises here that will cause an unexpected result. In my opinion there are some that feel Sirius XM should raise subscriber guidance from the current 1.4 million. While they may have a little wiggle room in the number, it is a bit too early to raise guidance just yet.