The perpetual delays in getting the approval from the Federal Communications Commission may be the least of worries for Sirius and XM.
from a year earlier on an unadjusted basis.
“Recent comments from the automotive industry indicate that many of the issues impacting the subprime [and collateralized debt obligation and loan obligation] market are projected to trickle down and carry negative implications on new car sales, implying around 15 to 16 million units sold in 2008,” said Goldman’s Wienkes. “As satellite radio operators progress toward an OEM-centric model, watch for primary and derivative effects of a housing and auto slowdown to temper the subscriber ramp.”
What TheStreet doesn’t mention is that Sirius and XM aren’t blind to this, and have said that the increasing penetration rates will offset the declines in auto sales. Whether or not this holds to be true will be seen soon enough.
Analysts also anticipate that the conversion from OEM promotional subscribers will decline - although during the fourth quarter the conversion rate actually increased from 52.4% to 53.9% year over year. For the full-year though, the conversion rate fell slightly from 53.3% in 2006 to 52.7% in 2007.
“Sirius installs will approach 70% of manufactured cars at Chrysler and Ford by year-end 2009 with penetration in other models such Volkswagon and Audi approaching 80%,” said RBC Capital Markets analyst David Bank in a note in February. “But the outlook for auto sales is soft, and retail … demand is anemic, so near-term upside to subscription estimates is probably limited.”
As for average revenue per user, or ARPU, TheStreet says that Sirius is expected to see ARPU tick higher in the first quarter, many analysts expect it to go down for XM. And in the event the merger gains FCC approval, ARPU is not expected to improve much as the time progresses.
“We assume no ARPU synergies as the combo may have to agree to price restrictions to get a deal done,” said Stifel Nicolaus analyst Kit Spring in a March 25 research note. “We calculate a net ARPU impact over time of a negative 2% to 5%, getting worse over time as the percentage of radios that are a-la-carte capable increase.”
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