Sunday, February 25, 2007

XM Conference Call

February 25, 2007

The XM satellite radio Conference Call is scheduled for Monday morning. Contrary to past calls, the important factors here have now shifted. Given the merger news, it is the outlook that will overshadow the Q4 and 2006 numbers.

Typically we would generate an article outlining and detailing our opinion of where the numbers will come in. Given the shift of importance, we will change our methods slightly.


The street is expecting a loss of 71 cents per share. We expect XM to beat that number. The number of gross additions was not as robust as XM had hoped for, but with fewer subscribers comes fewer expenditures. XM did not spend aggressively as they did in Q4 2005. This will help the bottom line. Investors need to be aware that there were some refinancing expenses that happened early in the quarter that could impact the number.


This figure is now a bit of a wild card. Nissan, Toyota and Hyundai installs for Q4 would count towards SAC and CPGA, but these installs are not counted as subscribers. in simple terms this means there are added costs on one side, and the benefit of using these installs in the divisor of the equation are not there. The level of impact will depend on the number of installs from these OEM partners. We anticipate that installation ramp-ups here are not yet substantial. We feel that XM will talk about a new metric to better define this situation. This new metric will likely be called something like "Promotional Installations". This type of metric is more important later in 2007, but XM should get the ball rolling. This will help investors understand why SAC and CPGA are rising a bit, and give the street an idea of what to expect going forward.


ARPU should remain fairly steady, and may see a slight bump in the advertising category. Advertisers are beginning to gravitate to satellite radio, and names such as Oprah help that process along.


This metric will be one that the street will begin to watch closely. Satellite subscribers have a tendency to pre-pay for several months, or even years in advance. This will be the last report from XM where the merger news was still unknown. Going forward it will be interesting to watch this line. We would expect that the average pre-pay will decrease going forward given the merger news and consumer uncertainty.


Churn will likely be right around 2% on the self paying side, and about 2.9% overall. Many are watching to see if there was an impact on XM due to the NASCAR move to Sirius.


The NET number is already known. Now it is time to see the GROSS numbers and the breakdown between OEM and Retail. Retail has been disappointing for XM for the past year, and there is a danger that at some point, if the retail share does not improve, that XM will have a virtual wash at the retail level. Such an event in and of itself would be very concerning to the street. In the face of a merger, the concern may be somewhat alleviated. We expect a bit over 600,000 deactivation's on a whole.


This metric has become more important in the minds of many. People seem to feel that the OEM channel will be very important to SDARS this year. Keeping the take rate above 50% seems to be important. If the take rate dipped below 50%, it could be cause for concern.....but again, the merger comes into play.


Guidance going forward will be the key, and it is hard to contemplate what exactly XM will say. They will likely provide realistic yet conservative goals and targets across the board. The trick here is to be aggressive enough to keep the street satisfied. Look for sub guidance to be between 1,5 million and 1.7 million. It is also quite possible that some of the guidance we received in the past will not be given due to the merger.

Q & A

This will be a must hear event. Look for most questions to center around the merger, and 2007 performance rather than the 2006 results.

Key items investors should listen for are whether or XM will be CFBE in 2007, what kind of losses are expected, and where the legal items stand. These items will be in the spotlight from time to time as 2007 moves forward.

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2/25/2007 07:55:00 PM

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