Sirius XM's Subscriber Picture Is More than Optimistic

By David “Newman” Phillips

Several reports have come out regarding the future of Sirius XM (SIRI) subscriber numbers, so I thought that it would be prudent to cover the issue here. Only two days ago, we had Tuna Amobi, the analyst for S&P, come out with a price target increase. (He did not actually UPGRADE the security though, which is curious since his price target was 100% higher than his previous target and 50% higher than the price of the stock at the time.) Certain people across the web are ignoring the fact that Mr. Amobi is predicting a full year profit for 2010, and instead focus on the fact that he is predicting negative subscriber growth through 2010.

Mr. Amobi is predicting that Sirius XM will finish off 2009 with 18.2 million subscribers, and 2010 with 18 million flat. If we take a look at the second quarter of 2009 results, we see that the company currently boasts just over 18.4 million subscribers. That would mean that the company needs to lose another 200,000 subscribers over the second half of the year to meet his projections. Let’s dive into the numbers to see what we can come up with.

First, let's look at the OEM picture for the past 2 months. We can see that in July 2009 there were a total of 999,816 vehicles sold, and for August another 1,259,264 vehicles were sold, bringing the total for those two months to 2,259,080 vehicles sold. With the improvement of the economy, and the fact that Sirius XM had many fewer “parking lot” subs on the lots in the 3rd quarter as compared to the 2nd quarter, we can assume that the churn will be much better. But you know what happens when you assume, right? So let's stick with the monthly churn rate given by the company of 2.8% All-In churn (note: this is different from the self-pay churn numbers reported, which was reported as 2.0%, already down from 2.2% in Q1). Allow me to walk you through some math:

Starting Subs:	18,413,435
OEM Sales (July):	999,816
Install Rate (50%)	499,908
Churned Customers (2.8%):	529,574
Ending July Numbers:	18,383,769
OEM Sales (August)	1,259,264
Install Rate (50%)	629,632
Churned Customers (2.8%):	532,375
Ending August Numbers:	18,481,026
Q3 Change:	67,591

That’s right: A positive net additions from OEM of 67,591 subscribers, and it is only 2/3 of the way through the quarter.

But wait, it gets better. As pointed out by Brandon, Mel tipped his hand in the Q2 conference call when he said that July subscriber growth was positive. My numbers above indicate a negative growth by a loss of about 20k subs, meaning my numbers are on the low side. I am utilizing a 50% penetration rate which I feel is low, and a 2.8% churn rate which I feel is high. If you change absolutely nothing else but the penetration rate to 60% (which is where Mel said we would be by the end of the year), that changes the net positive additions to 284,453. I think the actual number will be somewhere in between, but have absolutely no doubt that they will be positive based on what we have seen so far this quarter.

It also does not take into account the fact that many of the OEMs are ramping up their production of vehicles because of shortages. As stated by Mr. Matthews: “According to the Wall Street Journal, Ford (F) will increase its output to nearly 1 million vehicles and also reports that Chrysler as well is now using overtime and additional shifts to boost output. Sirius XM Radio enjoys a 70% penetration rate across these two car lines, which will add further support to Satellite Radio’s growth this year.”

What about retail, you ask? The great thing about using all in churn is the fact that it accounts for all churn, not just OEM churn, which means any losses from the retail side are already included in this scenario. The problem is, it only accounts for losses, not the additions. This means that my numbers are rock bottom numbers, and for the most part can only improve. Also, keep in mind the fact that Sirius XM just announced a whole slew of new retail offerings, not to mention the potential Game Changer in the XM SkyDock. These new offerings could definitely stimulate the non-existent retail channel for Sirius XM over the past 2 years, providing a needed boost to subscriber numbers.

Simply going by my numbers, this would indicate that Sirius XM would have to now lose 300k subscribers over the next 4 months (which are historically the best 4 months for Sirius XM) in order to meet Mr. Amobi’s predictions. I simply cannot see that happening.

Disclosure: LONG SIRI, no position any other security mentioned

Comments

[between the...:]

I think that we'll enjoy owning it as a penny stock that goes to a dollar stock and on up to a ten dollar stock as the recovery takes root and heats up. International would shove a bull horn up the shorts keister.

Sep 08 03:14 PM

[scots slant:]

Scot's Slant here. I can't wait for the non-compliance letter to be made public. That will settle a lot of bogus talk on this board. Personally though, I do hope the news of the letter sends Siri stock into the toilet for a brief period -- If it does, I'll pick up a few shares for the rebound that will be sure to follow.

And there is one more thing: Well no, forget one more thing; I said everything I needed to say....

Scot's Slant

Sep 08 03:36 PM

[jmsithy:]

I have a stop order at .64 and .65 incase it does go into the crapper I like the odds of this going up though


On Sep 08 03:36 PM scots slant wrote:

> Scot's Slant here. I can't wait for the non-compliance letter to
> be made public. That will settle a lot of bogus talk on this board.
> Personally though, I do hope the news of the letter sends Siri stock
> into the toilet for a brief period -- If it does, I'll pick up a
> few shares for the rebound that will be sure to follow.
>
> And there is one more thing: Well no, forget one more thing; I said
> everything I needed to say....
>
> Scot's Slant

Sep 08 04:07 PM

[I'mgettinmine:]

Good idea, will have to look into that. Stop order for like 63. and if it tanks a buy order for like 48. or 50., don't think a worse case senario would take it lower than that. We'll see. A drop to 20. for just one day would be ok for me as i could triple my shares. wouldn't mind havin 140 thou shares. A super fast runup would also be nice. Would love to see the shorts in a huge money loseing short squeeze!

Sep 08 05:03 PM

[between the...:]

Rumors are a swirling that new devices could be in the works in addition to the sky dock and Mirge. Every time Sirius XM has new hardware coming out, they put forth an internet sales push, which I'm starting to see. We'll see if the rumors could be true.

Sep 08 05:09 PM

[between the...:]

Amobi has to know something. He is not going to DOUBLE his price target just for the heck of it. Could it be GLOBAL subscription access being prepped to avert the delisting?

Sep 08 05:21 PM

[R A F:]

SIRI is trading from technical strength and should remain buoyant through any forthcoming news. All comments above about the degree of pullbacks, etc. are merely conjecture and any pullbacks will be viewed as buying opportunities. Longer term momentum should remain positive as the non-compliance letter that some are counting on to trigger substantial declines has already been factored into current trading psychology and well discounted.

Sep 08 05:43 PM

[between the...:]

A very interesting article on global prospects on Sat Waves "news."

Sep 08 05:58 PM

[Jerrold Wil...:]

umm...Mel would do a potential 10-50 for 1 split to make the stock approximately $6.00- $35.00? Why would he do that when the requirement is only to be above $1.00? Do you realize the stock is now approaching $.70? Are you still copying and pasting from when the stock was $.05 - $.12. Please, help me understand your thinking....There must be some logic to it....Also, shouldn't the stock price reflect this pending news that is approaching. Are you the only invester that has an inside tip? The stock is going up as your date gets closer....


On Sep 08 04:58 PM SIRI-Doom wrote:

> Just don’t be holding when Mel does the 10 – 50 for 1 rev-split.
>
>
> NasDq Delisting and / or rev-split Bad news September 12 - 18

Sep 08 06:25 PM

[jmsithy:]

Siri-Doom is incorrect by your assumption it is known that the reverse split would be no more than 20:1 no less than 10:1 dont let siri doom scare you he is embelishing this there is already reports from him teleconference back in May during the 1st QTR reports that if it came down to that and he stated he did not want to resort to this it is not 50:1 for the reverse split the 50:1 is his IQ


On Sep 08 06:25 PM Jerrold Williams wrote:

> umm...Mel would do a potential 10-50 for 1 split to make the stock
> approximately $6.00- $35.00? Why would he do that when the requirement
> is only to be above $1.00? Do you realize the stock is now approaching
> $.70? Are you still copying and pasting from when the stock was $.05
> - $.12. Please, help me understand your thinking....There must be
> some logic to it....Also, shouldn't the stock price reflect this
> pending news that is approaching. Are you the only invester that
> has an inside tip? The stock is going up as your date gets closer....
>

Sep 08 06:33 PM

[SIRI-Doom:]

Did you pay 10.00 for each share of SIRI ?

- Lets say Mel rev-splits 20 for 1 share.
- Lets say you paid 50 cents a share.

Along comes the rev-split date.
- You are now locked into a share price of 10.00 per share.

Food for Fools who will now argue SIRI will be 10.00 after the rev-split… LOL heheheh

Sep 08 08:44 PM

[R A F:]

No way. Sirius Xm has lots of time (up to one year) to address the question of share price - if, in the highly unlikely event, it is still trading below 1.00 at that time. Mel has every reason to keep his interests aligned with shareholders, as he now has an option grant of 120 million shares at a future exercise price of .43 - which would be adjusted pro-rata for any reverse split that might occur the future. So it is in his best interest to only push for what would be to his benefit - and to the benefit of all shareholders - going forward. So stop spewing this constant stream of misinformation, SIRI-Doom - You have been pasting the same old comments all the way up from the mid .30's and they really lack credibility.

Sep 08 09:24 PM

[BRUCE E. W.:]

Go for it RAF! As I see it this should be a rallying point from the common stock shareholders. We need more articles pointing at the SEC that demand attention to these machinations. The big money can push and pull the share price in either direction and sweep up real investment growth in the process. Short selling isn't the only threat from manipulation, and if we do see patterns and trends we need to highlight it to everyone...and start making a lot of noise about it!


On Sep 08 11:48 AM R A F wrote:

> Take a look at today's trading pattern: Over 13 million shares traded
> - all within one cent, in increments of only a few 1/100ths of a
> cent.
> Does anyone really believe this is being done by legitimate investors
> - reflecting value decisions based upon 1/100 of one cent?!!
> What more evidence of manipulation by Flash trading do you need?
>
> Where the hell is the SEC when legitimate investor interests are
> being tampered with?

Sep 08 09:41 PM

[SIRI-Doom:]

TRAGIC COUNT DOWN
Only 3 trading days to SIRI delisting from NasDq.

SIRI will be noncompliant of the NasDq 1.00 rule on September 12. NasDq delisting warning letter will be mailed to SIRI after the close on September 11.

Bad news press release can be expected September 15 - 18

Sep 09 04:09 AM

[SIRI-Doom:]

John Wayne lives

Goldman Sachs has loaded the six shooters and circled the wagons to protect SIRI. They will pump SIRI and keep the sp high as possible. They need to shallow the nose dive effect of the NasDq delisting letter.

If Goldman Sachs continues protecting SIRI, I can see the rev-split being expedited (a Mel quick and Dirty plan).

GS can not pump SIRI forever. GS has the rest of the stock market to manipulate with computer flash trades of TARP money.

Sep 09 04:23 AM

[R A F:]

SIRI-Doom - Your repeated comments above are a joke and your reputation among those who follow Seeking Alpha is as low as a reputation can go. Your repeated misstatements of fact are taken with a grain of salt by all who have seen them - ad nauseum - over the past several months. Your unchanged comments have been screeched as SIRI has rallied progressively from the mid .30's and anyone who followed your advice would be seriously damaged by doing so. The so called advice you put forth above is again way off the mark - SIRI will continue to reflect technical strength through any forthcoming news of non compliance - as there is plenty of time for Sirius XM to address this issue over the next year and investors have already been well conditioned to this anticipated news. Any pullbacks on this news will surelyu be taken as a buying opportunity and recoveries are sure to follow. SIRI will continue to trade from technical strength over the intermediate to longer term and current holders are well aware that upside potential far exceeds downside risk through this period.

Sep 09 07:14 AM

[Neal Barkett:]

I talk to a lot of Sirius Xm subs that complain to me when they have a question on billing or other problems it can very frustrating to the point where some people have cancelled ( I was at a golf fund raiser Saturday an a gentelmen was telling me how he cancelled over the frustration w/ trying to get a problem fixed w/ customer service even though he really liked Sirius Xm). It's seems to be a standard complaint w/ our cell phone companies, credit card companies etc. But just because it's a standard problem does not make it right. Customer service (esp. in billing questions) should be improved. I've been a Sirius fan, sub & stockholder for going on 5 years and believe in the product. If constructive crtisizim is not tolerated then I can only say you can't wear blinders and shake pom poms and just hope for the best, it's a good thing to bring up the positive & the negative that's how business works. Keep in mind sometimes customer service is the only human connection a customer has w/ that given company, so how they treat the customer is so very important. If you recieved terrible treatment from a waiter but the meal was great you still might not think it's worth coming back. Big companies forget about the human element which is a big mistake! I want Sirius Xm to be the best it can be, don't you?


On Sep 08 12:35 PM Jerrold Williams wrote:

> I am confused about you talking to people all the time about poor
> customer service. Sirius XM is pretty simple, pay the bill and get
> the service. It is not like cable tv where you have a ton of options,
> or cell phone bills with complicated bills. I have had XM for 7 years
> and i have had to call customer service only about 3 o4 times to
> add or cancel radios. Then to add/remove best of service . If you
> and your friends constantly call, you probably have personal issues.
> Sirius XM should cancel your service due to you and your friends
> being annoying and wasting their time. "Customer service" from 20
> years ago is dead!!! You call only when you need to change something
> on your account or ask a question. If you got satelite radio because
> of their customer service you should cancel. If you buy anything
> now a days for their customer service I think you should not get
> it. Unless you are spending thousands of dollars and you can shop
> around. Satelite is about $12.00 amonth....if you cant deal with
> thwir customer service...get an ipod and work with apple..Waste that
> companies money on being a whiner an complainer...what do you or
> the people you referred to call customer service for? To complain
> about signal?
> On Sep 08 08:56 AM Neal Barkett wrote:

Sep 09 08:22 AM

[Neal Barkett:]

Jerrold, just one more item follow up on my rebuttle to your comment to me. If they would name you the new CEO of Sirius Xm I couldn't sell my shares fast enough. You have no understanding on how a business should be run.


On Sep 09 08:22 AM Neal Barkett wrote:

> I talk to a lot of Sirius Xm subs that complain to me when they have
> a question on billing or other problems it can very frustrating to
> the point where some people have cancelled ( I was at a golf fund
> raiser Saturday an a gentelmen was telling me how he cancelled over
> the frustration w/ trying to get a problem fixed w/ customer service
> even though he really liked Sirius Xm). It's seems to be a standard
> complaint w/ our cell phone companies, credit card companies etc.
> But just because it's a standard problem does not make it right.
> Customer service (esp. in billing questions) should be improved.
> I've been a Sirius fan, sub & stockholder for going on 5 years
> and believe in the product. If constructive crtisizim is not tolerated
> then I can only say you can't wear blinders and shake pom poms and
> just hope for the best, it's a good thing to bring up the positive
> & the negative that's how business works. Keep in mind sometimes
> customer service is the only human connection a customer has w/ that
> given company, so how they treat the customer is so very important.
> If you recieved terrible treatment from a waiter but the meal was
> great you still might not think it's worth coming back. Big companies
> forget about the human element which is a big mistake! I want Sirius
> Xm to be the best it can be, don't you?

Sep 09 08:31 AM

[I'mgettinmine:]

"DOOM HAS NO CREDIBILITY AND IS A CONSISTENT SOURCE OF PROVEN INFANTILE MISINFORMATION FOR HIS OWN AGENDA"

Sep 09 01:17 PM

[Jagman:]

On behalf of Jerrold.....who are you to tell anyone how to do business...last I heard, your name isnt Bill Gates.....deflate ur ego sucka


On Sep 09 08:31 AM Neal Barkett wrote:

> Jerrold, just one more item follow up on my rebuttle to your comment
> to me. If they would name you the new CEO of Sirius Xm I couldn't
> sell my shares fast enough. You have no understanding on how a business
> should be run.

Sep 09 04:17 PM