Sirius added 540,000 new subs for Q4 which is almost 6,000 new subs a day. But the real news is that the other 3 quarters for 2011 averaged just over 4,000 new subs a day. This is a dramatic increase. When you compare this quarter to the average of the last three quarters the increase is between 40 and 50 percent. If the additional 6,000 per day subs were to hold throughout 2012, Sirius will add 2.2 million subs for a 30% increase. At $15 a month per sub this is $90 million in additional gross revenue added to 2012.
At that time, my prediction was met with complete disbelief. Even CEO Mel Karmazin set the sub guidance (in February) for 2012 at a measly 1.3 million. Why? Because everyone was afraid of the new rate increase. Eventually the sub guidance was raised to 1.5 million. And then today, when Sirius announced that Q2 subs have topped 600 thousand new additions, Mel raised the guidance to 1.6 million. The net new subscriptions for the first six months of 2012 are now over one million. That means that if the second six months is equal to the first, the total will indeed be over 2 million for 2012.
Sirius XM, in my opinion, has now become a product that is sought after. You can put it at the back of the store with absolutely no marketing, and the customers will find it. A lot of investors think that the takeover attempt by Liberty Media (LMCA) has hurt the company. And there are others who think Liberty could add value to Sirius. But it seems that the listeners could care less. They just want it! And the rate hike "doom and gloom" seems to have fallen on deaf ears.
Suddenly my 2 million subs prediction is not so ludicrous. According to an article in Barrons:
"We remain buyers of Sirius XM as subscriber growth continues to be solid despite announced price increase and we expect free cash to ramp given expectations for modest capex spend," wrote Citi analyst Jason Bazinet.
Other analysts have also pointed out that improving car sales numbers bode well for Sirius. The seasonally adjusted annual rate of U.S. car sales rose to about 14.1 million in June. If sales stay around that level, Sirius could add even more subscribers, noted Lazard Capital analyst Barton Crockett.
"If car sales stay above a 14 million SAAR and self pay churn is closer to the low end of guidance we believe sub adds could be close to 2M for the year," Crockett wrote.
The car sales are expected to stay above a 14 million SAAR. According to Reuters just last week:
Auto sales are an early sign of consumer spending and have been one of the bright spots in the economy for much of the year, although they trailed analysts' expectations in May, when the annual pace was around 13.7 million.
On average, analysts surveyed by Reuters had expected a 13.9 million annualized sales rate in June.
In the first half of 2012, some 7.27 million new cars and trucks were sold in the United States, indicating full-year sales of 14.5 million.
The major news here, is that consumers are feeling good enough about the economy to invest in a new car. This will affect the economy in general. As people buy new cars, and other products, such as Sirius XM subs, more workers are needed. There is a major positive Macro effect from all of this.
As for Sirius, if the Subs do come in at 2 million, that will be 25% over current guidance which would mean that gross revenue theoretically would be $100 million over current guidance of $3.4 Billion. That would make the 2012 revenue $3.5 Billion. And as I said in the January article, this is a conservative estimate. Keep in mind Q4 is the "Golden Quarter". Minus any share buyback, the stock should easily hit a $3 target now. With a buyback that number will be higher as I have said in other articles. If it can be done by January, it could send the price to over $3.50 a share.
Disclosure: I am long SIRI. I will continue to buy Sirius XM on the dips.