With September auto sales now in the books, and anticipated reports from auto makers due over the next 24 hours, it is all but certain that Sirius XM (NASDAQ:SIRI) needs to adjust its 2012 subscriber guidance from the current level of 1.6 million.
Sirius XM started off the year with subscriber guidance of just 1.3 million subscriber additions for 2012. This would have marked a disappointment following the 1.7 million that the company delivered in 2011. Sirius XM CEO Mel Karmazin was cautious with 2012 guidance in part because the company had just raised prices of the service as 2012 began.
As the months of 2012 began to roll by, and as the company was seeing the new pricing generate widespread acceptance, Sirius XM raised the bar to 1.6 million subscribers in 2012. Now, with two quarters already reported the company has already added 1,026,000.
It is anticipated that Q3 auto sales will be strong enough for Sirius XM to announce a pretty big subscriber number for Q3. In fact, a subscriber number north of 500,000 would put Sirius XM on the cusp of current guidance with another quarter to go. Clearly, the current guidance of 1.6 million should not be taken seriously anymore.
As auto sales headlines for September begin to roll in, they will likely include some refined outlook for 2012 that has final auto sales coming in above 14 million, perhaps even well above 14 million. It is anticipated that the auto sector will be at about 10.9 million vehicles sold through three quarters. This leaves us just short of 3.1 million vehicles shy of 14 million.
Traditionally, Q4 has been the second strongest quarter of the year in terms of auto sales. So for this year, Q1 offered sales of 3.4 million, Q2 had sales of 3.8 million, and Q3 is anticipated to approach 3.6 million. A reasonable and conservative assumption is that Q4 can deliver at least 3.6 million. Essentially, it is time for Sirius XM to raise subscriber guidance.
While many feel that Sirius XM will beat 1.6 million in Q3, I do not quite see that happening. While car sales have indeed been brisk, getting the 575,000 needed to pass the current 1.6 million guidance would be very aggressive. Simply stated, the level of auto sales, churn, etc. do not support that lofty of a number. Personally, I feel that the company will be 35,000 to 65,000 shy of 1.6 million when it announces the Q3 numbers. That being said, it is crystal clear that new guidance is not only needed, but warranted.
Looking ahead, it seems clear that Q4 should easily be able to deliver another 500,000 subscribers. That would put the company north of 2 million for the year. This would represent a very good milestone for the company.
While there is no way to predict exactly when Sirius XM will announce subscribers or new guidance, it is clear that it should come any day. The low guidance is essentially screaming for an adjustment and should force CEO Mel Karmazin's hand in the issue. With that, it is my opinion that we will hear something from Sirius XM very soon. That means investors should be ready, because positive news is headed down the pipeline. It is only a matter of time.
Should this news be delivered today we can expect Sirius XM to test some new highs.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.