Subscriber Numbers - A Deeper Look

September 13, 2006

With the end of the third quarter approaching, it is once again a time when investors begin to speculate about subscriber numbers for XM and Sirius.

We recently added two polls to SSG regarding subscriber estimates for both companies. The results are interesting, and it appears that there are many who are expecting some big numbers from this pair of satellite broadcasters.

With that we decided to step back a bit and take a look at what analysts are expecting this quarter. It should be noted that neither Sirius nor XM provide quarterly guidance for subscribers. It should also be noted that the impact of the FCC issue is tough to gauge at this point, as well as the impact of auto production and auto sales.

Upon researching the subscriber issue a bit, it turns out that analyst expectations are lower than we were thinking even a week ago. We are writing this piece now to establish where analysts are currently setting their estimates, and how that will compare to what happens in a week or so after the NPD numbers for August are released.

SIRIUS debt consolidation, ditech, loans

Currently analysts have subscriber estimates that range from about 410,000 to 460,000. The one exception here is Jonathan Jacoby who currently estimates that Sirius will have 600,000 subscribers. Amongst this pool of analysts (excluding Jacoby), the average is in the neighborhood of 430,000 subscribers for the quarter.

Many analysts have not yet updated their estimates, so we decided to take a look at the most recent 3 firms to do so. Bear Stearns, Barrington, and Morgan Stanley have an average at about 424,000 for Sirius.

XM debt consolidation, ditech, loans

Currently analysts have subscriber estimates that range from about 260,000 to 440,000. Amongst this pool of analysts, the average is in the neighborhood of 327,000 subscribers for the quarter. As you can see, there is a broad spectrum of estimates with XM, and this can make it difficult for investors to gauge.

As with Sirius, many analysts have not yet updated their estimates, so we decided to again take a look at the most recent 3 firms to do so. Bear Stearns, Barrington, and Morgan Stanley have an average at about 282,000 for XM. (Jacoby is at 375,000 for XM)

Up until this exercise, we here at SSG were thinking in the neighborhood of 470,000 for Sirius and 330,000 for XM. This exercise proves why it is important to take in and digest as much information as possible, and to keep on top of what is happening in the sector.

Some time in the coming week or so, analysts will get one more look at some additional data in the form of NPD numbers for August. These numbers are important because they reflect the time period when Sirius and XM potentially had the biggest negative impact regarding the FCC FM modulator issue (there was hardware available, so the impact of that issue is hard to determine). It would seem reasonable that analysts subscriber estimates could well be revised or updated after the release of Augusts NPD numbers, and we will track those changes for you.

Based on all of this data, it appears that the street will be looking for 424,000 for Sirius and 282,000 for XM. Last year posted 617,152 subscribers in Q3 and Sirius reported 359,254.

The year over year comparisons do not look great for XM or the sector, but do look okay for Sirius. Investors should consider what the reaction of the street will be to each component…..XM……Sirius…….Sector.

There are also a few things that people should know about the year over year comparisons:

Last year in Q2 and Q3 XM had a big jump in OEM over normal levels due to the GM employee discount program. For those 2 quarters, some people argue that the “inflation” of the OEM channel was about 75,000 to 100,000 subscribers in BOTH Q2 as well as Q3. If you remember, XM’s Q1 OEM was about 220,000, Q2 had the promotion, and was about 315,000. Q3 also had the promotion and was approximately 325,000 for the OEM channel. This means that there was a spike last year that was not duplicated this year. This makes a YOY comparison on XM a bit of an unfair comparison to make.

Last year in Q3, a lot of XM’s “Double Play” promotional subscribers were in the mix. The Double Play promotion basically gave a free receiver with the purchace of a receiver. The free receivers mostly shipped in July and August. Again, this would cause a spike in subscribers last year that was not duplicated this year.

For Sirius, OEM deactivations are now going to become a bigger part of the mix. OEM deactivations last year in Q3 were not very substantial as DCX was the main player for Sirius, and these subscribers get one year of the service. Starting from Q2 last year, the DCX installation rates began to climb more dramatically. That will bring a larger deactivation number this year.

What we are saying here is that investors need to consider what was happening THEN as well as what is happening NOW when you look at YOY comparisons. We will keep readers updated as the end of the quarter approaches.

9/13/2006 04:52:00 PM

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