With Sirius XM Satellite Radio (NASDAQ:SIRI) holding its shareholder meeting on May 22, it is no surprise that preliminary auto sales figures for May are not the focus of investor attention. With the stock sitting below $2.00 per share most that are invested in this company are worried about far more than how many cars will be produced and sold in May. However, savvy investors comprehend that while the shareholder meeting this year is of great importance, it is perhaps more important to keep a watchful eye on the channel that delivers subscribers to the satellite radio provider.
The good news is that auto sales this May, when compared with last May, will look very impressive. Last year we saw the impacts of the tsunami in Japan that carried lasting effects. In fact, the effects of that disaster are still being felt today thanks to year-over-year comparisons.
The bottom line is that almost all auto manufacturers will be able to announce robust year-over-year data, and that will generate positive headlines in press releases across the automotive channel. Positive auto headlines typically bodes well for Sirius XM.
In May of 2011 the auto sector sold 1,061,000 vehicles. This May sales are on a pace to deliver nearly 1,400,000. An impressive number to say the least. Auto sales in that neighborhood could bring in a Seasonally Adjusted Annualized Rate (SAAR) of 14.4 million, matching last month, but slightly down from a very impressive first quarter.
Investors in satellite radio will be pleased to know that only two months into the second quarter, auto sales will be approaching 2.6 million units, a full half of a million stronger than last year.
Seeing auto sales numbers like this is a good thing because matching the 452,000 subscribers Sirius XM delivered last year in Q2 is not set in stone. The issue rests with the mix of sales and production. Not all cars equipped with satellite radio deliver subscribers to the tally upon sale. Some are counted at production, some at point-of-sale, and some only after a three-month trial and IF the consumer elects to keep the service. More good news is that Sirius XM has over 5,000 dealers in place that are helping the subscriber supply chain by offering promotional subscriptions for used cars. If these consumers like the service and sign up, they get counted. The current pace of sales, coupled with an expanding used car market, should be enough for the company to deliver numbers like last year. Investors should temper any expectations of a number over 500,000 though.
Another reason the subscriber number may be a small challenge despite auto sales this year being so robust is that last year the 1.9% churn was based on self-paying subscribers of 17,170,000. This year the self-paying subscriber number is probably about 18,400,000. That translates into about 70,000 more subscribers deactivated from the same churn rate over the course of the quarter. It takes a lot more gross additions to offset that dynamic. There is still plenty of time left in the quarter before we can really assess the numbers, but indications at the half way point are that Sirius XM should be able to announce good Q2 subscriber numbers that will be impressive, in particular if June sales can match May.
Simply stated, what appears to be decent news for Sirius XM in the auto channel is being overshadowed by the drama surrounding the Sirius XM and Liberty Media (NASDAQ:LMCA) dance for control, the shareholder meeting, as well as the recent decline in share price.
I will be attending the shareholder meeting and will summarize the events.
Disclosure: I am long SIRI. I have no position in LMCA