Sirius XM Q3 Earnings Preview: Unknowns Abound 36 comments
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by David “Newman” Phillips
Sirius XM (SIRI) is set to report its Q3 numbers on Thursday November 5th. Of course, Satwaves will once again be providing live blogging coverage of the event using the CoverItLive Platform. I felt it would be prudent to let our readers know exactly what I am expecting. Brandon has already given his numbers, so now it is my turn…
Subscribers
As far as subscribers go, I think Q2 was the last quarter for subscriber losses. Regardless of what was portrayed by the main stream media, the losses were never as bad as The Motley Fool and TheStreet.com (TSCM) made them out to be. You see, for the past 2 quarters, nearly all of the losses came from the number of trial subscriptions, as opposed to self pay subscriptions. Self pay remained relatively flat, while the company reported a significant decrease in the number of trial subs – people that may not have even known about satellite radio or even known that it was installed in their new car. Of course, the Fool and the Street will never give you those details. I wonder if the media will differentiate this quarter? Why? Because I think self pay subs are going to remain flat, but overall subs will be up significantly.
The trick to the trial subscriptions is this: Many of the OEM manufacturers such as Ford (F) and Chrysler pay for the radios up front. As soon as that radio is paid for, it is counted for a subscriber. The problem with this is that the radio may be sitting on a shelf at an automotive plant, sitting in a new car on a parking lot somewhere (hence the term Parking Lot sub), or activated as a trial subscription. GM, Chrysler, and Ford all had factory shut-downs in Q2, and then inventory shortages at the beginning of Q3. In my opinion, the inventory at the end of Q2 was minimal. Today, most lots are full. This means that you are going to see a significant increase in parking lot subs and trial subs thanks to Cash for Clunkers. We also must not underestimate the power of the Certified Pre-Owned programs that Sirius XM has been signing on all year. My projection on overall subscriber number: 18,510,000, an increase of approximately 95k subscribers.
Key Metrics
With huge ramp ups and inventory building done in Q3, Sirius XM will have a significant increase in costs. Granted, as soon as the car is sold, Sirius XM receives payment for the full trial period, but that amount is amortized over the life of the trial period. Also, one must take into account the costs associated with developing and bringing new retail options (such as the XM SkyDock) to the market and advertising like they did with the Apple (AAPL) iPhone application. Costs will be up significantly, while revenue remains relatively flat.
Churn
Mel already tipped his hand at the Liberty Media (LCAPA) conference call regarding this. He said that it inched up slightly. Last quarter, the self-pay churn was reported at 2.0%. This quarter will come in at 2.1%.
EBITDA
Here is the disappointing number for many. Q1 EBITDA was reported as 108.8 million. Q2 EBITDA was 132 million for a total of $240 million. Their projected EBITDA for the year is $400 million, which means they only need to make $160 million for the year to meet their current guidance. I foresee Q3 EBITDA being nothing, plus or minus about 25 million (sorry, no EBITDA song this quarter). I do not expect to see management upgrade their forecast of “over 400 million” at this conference call, but I do foresee them making (and beating) their own guidance for year end with a strong Q4.
SAC
Will increase significantly due to advertising and increase costs with radios. It will approach the $64 area. (Q2 SAC was $57)
ARPU
Will decrease significantly because all of the parking lot subs that are added are not producing income and trials which produce it slowly. It will approach the $10.55 area. (Q2 ARPU was $10.66)
One Time Charges
Back in August, Sirius XM was able to successfully refinance the Liberty Media financing of 250 million dollars, and reduce their interest rate from 15% to 9.75%, and extend the maturity out quite a bit. Sirius XM recorded a discount amount associated with the loan of $123 million. This discount represents interests and costs associated with the loans that was paid for up front. The funny thing about accounting is that the discount means that they were not carrying the full loan amount on the books as debt. When Sirius XM paid off the debt, it left an imbalance that has to be written off as a one time expense related to the retirement of debt. This $123 million will be discounted slightly, but the company will still have to write off approximately $100 million in one time expenses, or approximately 2.5 cents per share. While many will harp on this, it was done with the sole intent of improving the cash flow and decreasing the quarterly interest payments which is a win/win for Sirius XM and its shareholders. Take note that this is merely an accounting procedure and absolutely does not affect the cash on hand. It should be looked at as a good thing.
Earnings Per Share
There are so many unknowns this quarter that it makes any sort of estimates difficult. The toughest of all is an earnings estimate. Traditionally, Q3 has come in somewhere between Q1 and Q2 numbers. Q1 earnings per share was (0.07) and Q2 earnings per share was (0.01) excluding onetime charges of which they had (0.03) in one time charges. I actually see significant improvement in EPS, but not quite to the profitable mark just yet. I see earnings coming in at exactly the same as last quarter of (0.01), and a one-time charge of (0.03), bringing the total EPS to (0.04).
Disclosure: LONG SIRI, no position in any other equity mentioned.
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As a frame of reference for trading levels along the way, it is important to review where SIRI was at various times through the merger process - when fundamantals and potential were not as far along the way to improvement as at present: The merger was announced on 2/19/07 and SIRI closed at 3.92 on 2/20/07; the merger was completed, after an unusually long delay, on 7/29/08 and SIRI closed at 1.58 on 7/29/08. The subsequent massive economic and financial turmoil of late '08 through mid '09 - including the virtual shutdown of the auto industry through this time span - caused SIRI to move through the lows of that period and the subsequent recovery since midyear that is now reflecting the strong potential that lies ahead. SIRI is trading from technical strength, as a result, containing each normal pullback with a resilient undertone and mounting subsequent recoveries to further test the upside. This pattern should continue over the foreseeable future, and SIRI has shown in recent days an ability to outperform the general equity markets, as seen in the stronger performance of SIRI relative to the DJIA, Nasdaq, and S & P indices.
Brandon and RAF stop already. Showing true colors now.
What investment firm you guys work for?
Lets wait till Thursday and see what happens. Talk all the numbers you want, bottom line will they meet, beat or disappoint the estimates. A (.04) will be a disappointment in relation to estimates.
SiriusXM needs to beat estimates. I would be happy with (.01) to even. This would be respectable.
Then enact R/S sell to Liberty Media and start Branding the SiriusXM name through money available from Liberty for R&D.
Anybody notice the World Series is sponsered by Direct TV among others. And its weird how at the ball park they were giving a lucky few XM Radios with 3 month sub (By the way not the SkyDock, an accessory get it).
Just a prediction.
RAF got any other financial terms you wish to redefine for your benefit today?
True Siri Longer (Looking to be part of LM family) and voice of reason.
oversight and analysis only points out the continuous mismanagement about setting out a future with a solid business model. It's all based on if the subs do this or that and if there are this many cars sold and if the trials sign on permanently, etc., etc.
People say, well the auto industry is down, there is a financial crisis, and people aren't spending. Well tell that to
Apple. Iphones are selling, ipods are selling and the monthly subs price are very high. And this during the biggest recession. So if things are so bad economically why are people shelling out so much on Apple prod.'s
The reason is Apple has it's act together. They have developed a product that is a must have. They have a management that knows how to think ahead, prepare a business model and deliver to the customer.
SIRI management is a bunch of old farts. What's their latest product offering, Roesanne Barr. Oh boy.
SIRI may have missed it's day. The idea that they could deliver programming by sat. rad may now be dead tech. Because now programming can be delivered thru tel co.'s and so who needs sat rad anymore. Once a new wave of programmers catches on that it can all be delivered thru tel.'s, sat rad is going to be old tech pretty soon.
SIRI is a day late and a dollar short. Also a few bananas
short a good, young future thinking management. SIRI
will be sold off in the future thru future leveraging and some at the top will make a bundle and the rest will get the shaft.
The future ain't SIRI anymore, it's passed. It will be cell phnoes all the way now. In the car, in the hand, in the house and in office and work place. All that's needed is the programs and personalities to be sent via cell phones, with
out sat. rad. Good job SIRI management. You've put yourselves out to pasture.
I know everyone will bash this blog and mark their minus,
but at sometime it has to said.
"The future ain't SIRI anymore, it's passed. It will be cell phnoes all the way now. In the car, in the hand, in the house and in office and work place. All that's needed is the programs and personalities to be sent via cell phones, with out sat. rad.
This type of thinking is what many people have, and it is wrong. People think SIRIUS XM is selling "satelite" radio service. You position SIRIUS XM as a competitor to cell phone service. SIRIUS XM does not in anyway compete with the cell phone services ability to get audio entertainment. SIRIUS XM will be available on all cell phones in the near future through wi-fi and the internet. When you point out "all that's needed is to get personalities and programs to cell phones", you miss the whole point of the benefit of SIRIUS XM. You don't seem to understand how difficult that would be for any "new" company to compete with SIRIUS XM for its variety of content and personalities. SIRIUS XM is a CONTENT provider, not a satelite service provider. Therefore, when cell phone/internet service is available nationwide 3g/4g..no deadspots..., SIRIUS XM will still compete with anyone on content. Not compete on the ability to get a signal through satelite or a cell phone. People will want to listen to quality audio entertainment, the technology behind it isn't important to the user.
You don't realize that when you say cell phones have access "In the car, in the hand, in the house and in office and work place", that will be a MAJOR selling point for SIRIUS XM for the future. You should patent that before they use it. In the past, $15.00 got you great audio in the car...In the future that same subscription gets you great audio "In the car, in the hand, in the house and in office and work place" GOOD DEAL..No other company in the forseeable future will have the platform that SIRIUS XM has. They have satelite, internet/WI FI. So anywhere you can see the sky you have service. Anywhere your cell phone works, you will have service...etc...
BTW, I'm listening to SIRIUSXM right now through my computer, not satelite....SIRIUS XM is the future of audio entertainment...who cares if it is through satelite, internet, phone, or anything else that comes along...Stock will recover in the long term. This is just the beginning of SIRIUS XM. In a few years, it won't even be called satelite radio....Just SIRIUS XM....Go to XM's website. You will see their websites rarely uses the word "satelite"...Just XM radio..... ...You are about 5 years behind in your thinking about SIRIUS XM DAYWORKER,
On Nov 03 01:43 PM Jerrold Williams wrote:
> above comment...1st line I I meant I have to DISagree....my typo....
"Don’t read too much into 3Q reports overshadowed by sustainability questions.
What does that mean?!! If they have a good report, you saying the stock will still go down because of sustainablity issues? Is that your opinion? Really? Are you serious? or is this a joke? Positive report in a recession and we worry about sustainablity as economy hopefully improves??? i just don't get it....help me understand.
On Nov 03 12:07 PM SIRI-Doom wrote:
> Thanks Giving Beans
>
> We see institutions and the street questioning the current economic
> 3Q improvements. Government stimulated programs like “Cash for Junkers”
> haves provided premature short term orgasmic glee.
>
> Other than debt reduction, SIRI 3Q improvements will be questioned
> with the same economic skepticism as all other nonessential product
> providers. The market is not responding with optimism as normally
> expected for companies that have reported great numbers. Simply put,
> SIRI is reporting 3Q to a market full of bears.
>
> A good 3Q report is welcome. However, most sales numbers will be
> over shadowed by sustainability questions in a gun shy government
> pumped market.
>
> Don’t read too much into 3Q reports overshadowed by sustainability
> questions.
Comments are spot-on and it's a shame that this explanation needs to take place over and over again. As the old saying goes: Conent is King. Any phone company is capable of duplicating the level and diversity of content provided by Sirius/Xm, however, by the time they finish signing all the exclusivity agreements they too will be charging $13 per month for access! There's a reason things are free in life and that's because generally no one wants them.......
On Nov 03 01:42 PM Jerrold Williams wrote:
> Dayworker, I have to agree with at least one of your points, mainly
>
>
> "The future ain't SIRI anymore, it's passed. It will be cell phnoes
> all the way now. In the car, in the hand, in the house and in office
> and work place. All that's needed is the programs and personalities
> to be sent via cell phones, with out sat. rad.
>
> This type of thinking is what many people have, and it is wrong.
> People think SIRIUS XM is selling "satelite" radio service. You position
> SIRIUS XM as a competitor to cell phone service. SIRIUS XM does not
> in anyway compete with the cell phone services ability to get audio
> entertainment. SIRIUS XM will be available on all cell phones in
> the near future through wi-fi and the internet. When you point out
> "all that's needed is to get personalities and programs to cell phones",
> you miss the whole point of the benefit of SIRIUS XM. You don't seem
> to understand how difficult that would be for any "new" company to
> compete with SIRIUS XM for its variety of content and personalities.
> SIRIUS XM is a CONTENT provider, not a satelite service provider.
> Therefore, when cell phone/internet service is available nationwide
> 3g/4g..no deadspots..., SIRIUS XM will still compete with anyone
> on content. Not compete on the ability to get a signal through satelite
> or a cell phone. People will want to listen to quality audio entertainment,
> the technology behind it isn't important to the user.
> You don't realize that when you say cell phones have access "In the
> car, in the hand, in the house and in office and work place", that
> will be a MAJOR selling point for SIRIUS XM for the future. You should
> patent that before they use it. In the past, $15.00 got you great
> audio in the car...In the future that same subscription gets you
> great audio "In the car, in the hand, in the house and in office
> and work place" GOOD DEAL..No other company in the forseeable future
> will have the platform that SIRIUS XM has. They have satelite, internet/WI
> FI. So anywhere you can see the sky you have service. Anywhere your
> cell phone works, you will have service...etc...
> BTW, I'm listening to SIRIUSXM right now through my computer, not
> satelite....SIRIUS XM is the future of audio entertainment...who
> cares if it is through satelite, internet, phone, or anything else
> that comes along...Stock will recover in the long term. This is just
> the beginning of SIRIUS XM. In a few years, it won't even be called
> satelite radio....Just SIRIUS XM....Go to XM's website. You will
> see their websites rarely uses the word "satelite"...Just XM radio.....
> ...You are about 5 years behind in your thinking about SIRIUS XM
> DAYWORKER,
Again this stock is toooooo cheap to get in without high risk.
On Nov 03 02:23 PM between the hedges_ wrote:
> tick tock, sky dock, blackberry app, google app, tick tock, auto
> rebound, cash for clunker, pre-owned additions, ford profit, tick
> tock, cover cover, mel incentivized with options, tick tock, nfl
> football, ncaa football, tick tock, holiday season, consumer loaded
> with cash, tick tock, friends telling me they can't live without
> sat rad, tick tock, 1.5 hours today to cover, tick tock, one more
> trading day after today to cover, tick tock, can't stop the clock,
> tick tock, home sky dock, tick tock, ad based model, tick tock.
The SkyDock or any other accessory isn't going to help get subs, the product will.
This is where R&D and having there own mobile unit enforces brand name.
He can launch his own Stern show via an app and Website. He can charge $.99 a month or $1.99 a month. Consider how many millions listen to him, he can take them all with him to his independent show under his own management. No bosses, no SIRI. Just Stern production. The money is all his. That is the future now, my friend. And that's what everyone else will start doing.
Once they see someone like Stern do it, then the flood gates will open and everyone can take a shot on a small upfront cost. Like Blair Witch or Paranormal. There will be a virtual avalanche of content. (Virtual-no pun intended)
Get my point. The whole field of content will change. I use a kindle
reader, so I don't get newspapers and magazines any more. I get blogs off the internet and the kindle. Some are fee based. I buy at prices from $.49 to $1.99 subscription. I buy the independent content I want. People will go out and buy independent shows and personalities they want ala carte. They won't need SIRI. Also,once the talent and personalities realise they can put on their own shows thru apps and websites, why go to SIRI. The writing is on the wall.
It's over. We're going into a new era. That's just a fact.
Well, if that's true, could you please explain what you base your opinion on when Rosie, Oprah, Stewart and all other SiriusXM radio personalities have not do that?
And there is one more thing: When it comes to Limbaugh, O'Reilly and the rest of those clowns on terrestrial radio, I've never heard of them jumping ship to a medium of their own either.
Scot' Slant