By Brandon Matthews
Expectations are for December auto sales to exceed one million units. This would be considered positive for Sirius XM (NASDAQ:SIRI) under normal circumstances from a subscriber acquisition perspective, and would help boost overall numbers that may have fallen short in October and November. I believe it is better below the surface than many would anticipate. As reported by Jessica Caldwell of Edmunds.com, December is typically a strong month for high end auto sales. These vehicles have not only the best satellite radio penetration rates, they have the highest acceptance rates as well.
Despite a historically manageable churn number, it continues to be a drag on Sirius XM Radio’s subscriber growth. Even a modest monthly churn rate of 1.5% can mean a loss of 225,000 subscribers monthly, based on fifteen million self paying subscribers. That monthly loss is historically offset through the OEM market and subsequent conversions to self paying subscribers. Negative growth occurs when the churn rate is higher than the OEM conversion rate.
Recent news indicates not only a spike in light vehicle sales in December, but more importantly indicates a continued thawing in the credit markets. This thawing effect is occurring for the most part for consumers with exceptional credit only. This has been a theme for the past six to twelve months. From a Satellite Radio perspective, these consumers are more likely to continue their service and purchase longer term renewable plans than high risk individuals who are more worried about making their monthly car payments.
This should mean a reduction in self pay churn for Sirius XM, which would translate into accelerated subscriber growth going forward. What will the critics say then? The jury is still out on cash for clunkers conversions that were due in the recently ended quarter, yet the brand campaign will likely have resulted in better than expected results. Perhaps the critics can hold out hope in that area, until Sirius XM reports earnings in early to mid February. In the meantime, I suggest they use the black ink pen when making their quarterly predictions this month, and leave the red one alone.
Position: Long SIRI