While Sirius Satellite Radio subscriber first quarter 2007 numbers were well above many analyst's expectations, analysts seem mixed over the implications of their results.
In a recent note to investors, Jacoby highlighted that the source of the high subscriber numbers was the OEM channel. Jacoby said that since Sirius counts subscribers at the time of vehicle production rather the time of sale, this is less indicative of true consumer demand.
"This suggests the biggest boost to the subscriber base in the first quarter has come from "car-lot" subscriptions," Jacoby wrote in a research note.
Craig Moffett, with Sanford C. Bernstein, said in a note to investors that Sirius' subscriber gains were also ahead of his expectations, indicating that "demand for satellite radio is far from dead." Moffett cautions that customer acquisition costs still remained "stubbornly high" and that churn was higher than he had expected, although in line with forecasts.
"Car-lot" subscribers? So what. That only proves that their OEM penetrations is getting better and better. The cars are going to be sold eventually anyway, right? Jacoby is reaching here...
If they're going to continue to report unsold cars as subscribers, at the very least they should disclose exactly how many there are and be willing to provide information as far as the conversion rate on them.
In the past, they've claimed there is an insufficient sampling to report a conversion rate and that it is "about like XM's". Now, it seems they've just moved to, "We're keeping that secret".
Between this, misleading shareholders on "Free Cash Flow breakeven", and refusing to provide any true CPGA data I just don't know how anyone can have any confidence in SIRI's reporting.
>>> The cars are going to be sold eventually anyway, right?
Ah, the Doberman Law. Of course, by that logic, why not count unsold receivers at Best Buy and Walmart? For that matter, why not estimate the reactivation rate on out-of-service receivers and call THOSE subscribers?
Before OEM was ramping heavily, one could at least rationalize it on the basis that, over time, the percentage of total subscribers comprised by the bogus subs would go down. But now, who knows? As DCX ramps up penetration, we get EVEN MORE MISLEADING data from this company.
Management said before that about 9% of gross adds each quarter are the so-called "parking-lot subscribers", and that there's about a 3-month wait until the car gets sold. If you take out 9% of the gross adds for the quarter, the numbers still look pretty good. At ~1 million gross adds per quarter, that basically means that at any given time, the actual listening subscriber base is roughly 100k less than the reported net subscriber number. Net effect: Sirius has 6.5 million subscribers instead of 6.6 million. It's a handy fact to remember, but I hardly think it's worth griping over. They recognize the subscriber when they get paid for the subscriber, and I find it hard to criticize that concept.
I find it hilarious how desperate Jacoby is discredit Sirius every time he is proven wrong. I distinctly remember this time last year when XM improved NPD numbers from Feb to March - and Jacoby stated that the "Stern bubble" was over and XM would soon retake the lead in net adds. How did that statement work out? I really wonder why anyone takes his research seriously when he continually messes up estimates and revises his targets every other week. I generally have little to no respect for analysts, thanks to people like Jacoby.
OK, Churn Jumped. This could be one of two things and only the next couple Q's are going to tell us what it is.
Option #1 could be the 2005 bump up in Chrysler OEM subs churning out after the 1 year subscription runs out plus the up to 90 days on the lot plus the 1 month grace period.
Option #1 this could be all the 2005 Stern Holiday gifts with 1 year subscriptions running out.
Oh wait, Best case Scenario is that its both. This jump in the churn may not be that bad if thats the case.
"Ah, the Doberman Law. Of course, by that logic, why not count unsold receivers at Best Buy and Walmart? For that matter, why not estimate the reactivation rate on out-of-service receivers and call THOSE subscribers?"
Ahhh, the Apples and Oranges argument. The difference being, of course, that once the cars are built, Sirius receives payment from the car companies for the 6 (or whatever) month subscription. Sirius doesn't receive that from Best Buy once the radios are placed on the shelf. Its just a matter of accounting.
XM counts the subs when the cars are sold. I wish both companies only counted the subs when they activated after the trial period, but they just don't do that. I fail to see a big difference between when XM counts the sub and when Sirius counts the sub. Sorry.
>>> Management said before that about 9% of gross adds each quarter are the so-called "parking-lot subscribers",
You may want to check your work on that.
I believe Frear stated that the parking lot subs comprise ~9% of the TOTAL subscribers, not the quarterly adds.
Sirius could have ZERO debt and 1 BILLION new retail subs and Jacoby would spin it as some sort of down trend...... Jacoby hates Sirius.
Check out how XM Canada now counts their subs......It is B.S. X2.
Sirius was dominating by 3 to 1 so XM *updated* the sub numbers.
Face it XM fanboys, Sirius IS "Satellite Radio", just like kleenex IS facial tissue....synonymous. Just as Mel K. predicted, the Stern effect worked well.
XM had better hope this merger goes through sooner rather than later.
I went back and googled it, and you're right - kinda. Unsold cars were less than 9% of the total halfway through 2005, and Frear said the percentage would trend down with a larger subscriber base. Estimates from 2006 put the percentage at less than 5% by the end of 2007 - so we're probably looking at about 350k total parking-lot subscribers vs. my incorrect estimate of 100k. It's definitely worth noting, but it doesn't really change the overall picture. Based on the 90-day average time to sell, it basically means that it will take Sirius about 3 more months to catch up to XM than the reported subscriber numbers indicate.
What really matters more is the absolute number of radios installed and the take-rate on those radios after the trial ends. I suspect that Sirius has a slightly higher take-rate than XM, since Sirius offers longer trial periods and because they have the lead at retail. I actually think that XM's 51% take-rate is impressive - the fact that more than half of customers choose to pay for radio is a good sign for the long-term prospects of both companies. And I think that number would go up if they had dual-mode radios available, so the customer would actually get to choose programming from both providers instead of being left with just the one.
>>> What really matters more is the absolute number of radios installed and the take-rate on those radios after the trial ends. I suspect that Sirius has a slightly higher take-rate than XM, since Sirius offers longer trial periods and because they have the lead at retail.
Suspect it all you want; Sirius has flatly refused to provide information on take rates, OTHER than to say "it is about like XM's". Before, they were claiming there was insufficient data to call any trend, but now, they're just saying, "We don't provide that information".
If their take rate was higher than XM's there is ZERO doubt they would be pointing to it; their history is absolutely clear.
The only conceivable reason for them refusing to disclose is that the number is NOT as good as XM's. I believe we have seen today that SIRI's churn is starting to trend higher, due in part to increased OEM deactivations.
"The only conceivable reason for them refusing to disclose is that the number is NOT as good as XM's."
Wow, that's clear unbiased research.
It is clear that Sirius has been ramping up OEM installs at a higher growth rate (percentage-wise) lately, and that the OEM subscription trial lengths vary quite a bit, which makes it very hard to compute a reliable number for take rate. XM has a longer OEM history and a consistent 3-month trial period, and thus they can report their number with confidence. I doubt that the take-rate for Sirius and XM differs more than a few points, despite what your XM-love affair feelings tell you. It is reasonable to assume that since Sirius has come from behind and significantly overcome XM in retail adds, that customers generally prefer Sirius, and that should be reflected in the OEM take-rate. I'd like to see them figure out that number, but it's easy to see why they can't at this stage in the company's growth.
Personally, I chose Sirius because of the edge in entertainment content, but it's really not a big preference over XM. I sense that the majority of new satrad subscribers share that same sentiment, since it has been reflected in NPD and Bridge ratings, among other sources.
Why the personal vendetta against Sirius Stack? Did they fire you or something? Do you hate Howard Stern so much that you have to fight anyone who mentions something positive about Sirius or the merger? Come out with it!
>> >Why the personal vendetta against Sirius Stack?
No personal vendetta. I simply do not believe that their sleezy business tactics should be rewarded, and they have been for a very long time.
From an investment perspective, both suck right now. But XM is much healthier financially, and they don't get an appropriate level of respect for it -- due largely to XM's unwillingness to counter Sirius sleeze with XM sleeze.
Of course, XM management has rewarded Sirius' sleezy tactics with a 4.6:1 exchange ratio, so if XM management doesn't think any better of their company I'm not sure why I should, either.
Overall, XM has outperformed Sirius from the outset and frankly, they continue to do so -- but because Sirius doesn't deliver straight talk the average person doesn't know it. Sirius shareholders, as a group, are clueless as to the trickery behind the numbers.
Take today's biggest news article for example -- "Sirius subscriber growth outpaces XM Satellite". Seems reasonable -- after all, SIRI came in in Q1 adding 550K while XM added only 280K. But when you dig a little deeper, you find that SIRI is counting hundreds of thousands of unsold vehicles as subscribers, which XM isn't doing. While it is true XM could do the same, two wrongs don't make a right -- Sirius is not allowed (by GAAP) to recognize revenue on those subs, and they shouldn't be counted. Period, end of story.
Or consider last year's sleight of hand -- they knew they were facing a loss approaching 1.2 Billion from the idiotic hiring of Stern. So, they changed the subject -- "We'll be FCF positive in Q4". Sure, you will. Well, they were. But now, in Q1, they burned $150M and will continue to burn cash all year long. But conveniently, they have told us, "Oh, well, we're not doing cash flow guidance anymore". Of course, they aren't -- because it looks like hell and they know it. Sleezy. (BTW, both companies are guilty of the "cash flow" deception, but XM has been far more upfront than Sirius has -- when XM had a single quarter of positive cash flow a couple years ago, they simply dismissed it as "We actually generated cash flow, but you should be aware this is not THE CFBE we're all waiting on".
XM has been criticized by many on these threads for its up-frontness, and at times I've been frustrated as well. But overall, XM's management has been far more honest in its dealings -- which probably accounts for the dismissal of the shareholder suits against XM while Sirius had to pay to settle theirs.
I could list the litany of Sirius sleeze tactics -- dating back to the earliest days of the industry. Notable events like the Bogus Midnight PR related to Toyota, which still has SIRI shareholders confused even today, years later, with purportedly credible people (like SSG) STILL believing Sirius has a "deal" with Toyota -- this kind of crap is inexcusable and are simply a variant of the same kinds of tactics that brought Enron down.
So, there is no vendetta -- I just don't like to see the bad guys get away with this crap.
And Mel has about 10 too many teeth. That really bothers me, too.
The one thing that I have heard from talking to relatives about why they don't have XM or Sirius radio is because the radio is in the car only, and that they are in the car for upwards of a half an hour a day (sometimes more) but they can't see a value in paying for something they really hardly ever use.. and what I wish they (XM or Sirius) would do is not only have the cars satelitte radio ready, but also have a home unit come with the car as a free subscription equal to the same lenght as the cars subscription.. people might sign up either radio or both if they had the chance to listen to what there is... or not...