A Look At XM Subscribers Going Forward
July 6, 2006
After today's subscriber announcement of 398,000 NET subscriber additions, we thought we would take a look at XM going forward. Current guidance dictates that XM Satellite Radio needs to add 1,600,000 subscribers to hit 8,500,000 by year end.
Q3
Last year XM added 617,000 subscribers in Q3. They benefited from a tremendous influx of subscribers from GM's employee discount sale in June (Q2) and July (Q3). This year GM did not really do any promotions early on. This was partly due to issues with a potential delphi Strike that had GM wanting to have a "stockpile" of vehicles to offset potential production stoppages. With the Delphi issue virtually settled, GM will now be free to run some promotions. In fact, they already ran 1 promotion through July 5th. Watch for GM to become more prominent in the next couple of months with discounts as the model year closes. This should help XM's numbers. In additions, any big sales boosts that happen after August will not have deactivations until Q1 2007.
The Addition of Hyundais full installation program is set to begin with the 2007 model year. These 2007b model Hyundais should begin hitting dealerships in September, and will provide at least some Q3 boost, because every hyundai that sells will become an XM subscription.
Oprah will also be arriving at XM in September. It is reasonable to anticipate that she will be doing some promotion in the month prior, and that she will generate some buzz and subscriptions for XM.
If Oprah, Hyundai, and GM can ramp up enough subs to offset the higher churn (higher simply because the subscriber base is bigger), and match up with what GM did with their July sale last year, XM should be able to get near where they were last year in terms of subscribers for Q3. If this happens, XM will need 1,000,000 subs in Q4 to reach 8.5 million
Q4
The biggest factor here is that the OEM deactivations will not have the same impact as last year. Q4 last year saw a substantial spill-out of the huge subscriber influx in Q2 and Q3. This will not happen this year.
The fourth quarter will also see a full quarters worth of Hyundai production. This should add about 125,000 subs by itself.
Oprah will still be promoted, and her impact will be an attraction for still some more additional subscribers.
The Inno and Helix line should be big holiday offerings, as will other new units that XM may release. Units such as these can have a broad appeal, but need to chip into the I-Pod market moreso than they have so far. As satellite radio gains broader acceptance, these types of units will be attractive.
The downside in Q4 for XM is the loss of NASCAR. Exactly what impact this has is yet to be seen, but the loss is a negative aspect to the quarter for XM.
Some analysts have XM missing their guidance of 8.5 million subscribers. In our opinion XM can hit their target if they are able to match their Q3 of last year, and they get some additional help from Toyota and Nissan (these manufacturers offer both satellite services, but XM does have a factory install relationship with them).
In our opinion Q3 is very important for XM, and they need to show a strong move. In our opinion XM needs to be able to announce 7,000,000 subscribers prior to July 23 to show a pace above that of Q2.
7/06/2006 07:43:00 PM
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