Monday, April 30, 2007

Sirius Q1 Preview From SSG

April 30, 2007

In case you missed it we are republishing our Q1 2007 earnings preview for Sirius.

Sirius will be having their Q1 conference call prior to the market opening on Tuesday. This means that investors have two trading days left before Sirius’ news hits the streets. All things considered, Sirius has had the ability for several quarters to compile some good numbers for the earnings call, and this quarter should be no different. There are a few key items to consider going into the call:


Last year in Q1 Sirius took a big expense for the Howard Stern shares. That expense accounted for $220,000,000 of the loss last year. That means that the narrower loss that Sirius reports this year will be very good in comparison. The street is expecting a loss of 11 cents. Last years loss was 33 cents. It does not take much imagination to see headlines proclaiming the substantially narrower loss.


Sirius is getting deeper penetration from DCX who is reported to be at 40%. With DCX selling nearly 540,000 cars in Q1, and manufacturing still happening, the DCX contribution could well approach 220,000 GROSS additions alone. Ford is also ramping up, and other partners have made strong commitments as well. Although Sirius has not provided flavor on the subscriber split between retail and OEM, I would estimate that Sirius will come in with roughly in the neighborhood of 550,000 additions.


Last year until very late in the year, Sirius was anticipating 6,300,000 subscribers. They came in with a bit over 6,000,000. Sirius likely had a substantial stockpile of radios that had the SAC expenses already paid in 2006 left over. These radios, virtually free of 2007 expense, would have been the crop that sold in 2007. Simply stated, this means that Sirius likely had to build far fewer radios this Q1 than they did last year. The expenses associated with radios can have a noticeable difference this year. Additionally, in Q4 2005, some expenses pushed forward into Q1 2006. We anticipate that that kind of activity will be a lot less this year.

Now, with all of that being said, here is our outlook for Q1 2007:


We anticipate GROSS subscribers to arrive in at 1,030,000. We anticipate the NET number to be at somewhere between 545,000 and 565,000. If I had to throw an exat number I would place it at 557,000.


Sirius reports a fully loaded churn number. They guided to full year churn of 2.2% to 2.3%, and I think they will come in just above that range for Q1. I am anticipating fully loaded churn of 2.4%.


I am anticipating revenue of $229,000,000


The street is looking for a loss of 11 cents per share. I am anticipating that Sirius will beat that estimate and come in at a loss of 10 cents per share. Some big factors in arriving at this number relate to savings discussed above.


The unknown in this situation is CAPEX spending for their satellite. As pointed out by a reader, this would not impact EPS. CAPEX is a balance sheet and cash flow metric. The big factor here relates to cash burn. if Sirius is building out the satellite faster than anticipated, there will be an impact to cash. However, the satellite buildout has been budgeted already by Sirius in their cash flow projections.


This subject always draws some interesting comparisons to XM. What investors need to remember is that SAC and CPGA are not dictated by Generally Accepted Accounting Principals (GAAP). This means that the company can dictate what goes into these numbers, and how things are accounted for. There is nothing wrong with the way Sirius or XM count SAC and CPGA, investors just need to understand the differences. The structure of deals such as OEM deals play an important role in these metrics. That being said, I anticipate SAC to come in at $103 and CPGA (though Sirius does not report this metric) to be at $136. As Sirius rolls out newer chipsets in the OEM channel, these metrics will improve further.


Look for the call to be pretty straight forward without a lot of bells and whistles. Sirius will likely give some mention to the video initiative, as well as some flavor on the merger. Look for the Gross subscriber number to be highlighted, and perhaps even some flavor for the first time on Gross retail additions, although I think this is unlikely. Market share may be briefly discussed, as Sirius will have passed the 45% mark on overall market share, representing over 25 basis points of improvement since Stern was announced in the fall of 2004.


I encourage investors to watch the volume closely. With XM reporting a decent quarter, and the spike in PPS, there will be many considering their moves prior to the call. Also of note will be the options market. Investors should watch the volume and open interest of sirius and XM options as well. Options information can be obtained at www.cboe.com

4/30/2007 09:34:00 AM

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  • Could someone explain what to look for in the open interest options? I would really appreciate that help because I am not sure what to make of the numbers. Thank you.

    By Anonymous Anonymous, at April 30, 2007 11:51 AM  

  • Could someone explain what to look for in the open interest options? I would really appreciate that help because I am not sure what to make of the numbers. Thank you.

    By Anonymous Anonymous, at April 30, 2007 11:51 AM  

  • This explains it well.


    By Blogger SSG, at April 30, 2007 11:59 AM  

  • Thnak you, I read the info. I see 3.00 and 4.00 calls and 3.00 puts, I don't know how to interpret this info for SIRI. How do I use this info? If the stock is falling today, I assume people think the earnings will not be good, but I would like to know how to use this option info.

    By Anonymous Anonymous, at April 30, 2007 2:03 PM  

  • Options interest deals with pricing in the future. Basically it tells you what people are anticipating an equity to trade at at a time period that is down the road.

    In simple terms it gives you a measure of the sentiment today and the anticipated sentiment at a point down the road.

    An option contract relates to 100 shares. The price you see quoted is the price per share for a contract. By example, a price of 20 cents means that a contract will go for $20. The buyer of a call option is paying $20 for the right to purchase those 100 shares at any time between now and the closing date for the deternmined and stated price.

    By Blogger SSG, at April 30, 2007 2:49 PM  

  • I understand what you just said, but to lokk at the table and see 3.00 and 4.00 options, how does that help me know if I should sell my shares ar hold them into earnings?

    By Anonymous Anonymous, at April 30, 2007 3:12 PM  

  • Whether you buy sell or hold is a decision you need to make yourself. If you notice a particular spike in volume or open interest at a specific level, it is an indicator of where sentiment lies with the equity. By example, if many people were buying options contracts at a level higher than todays market price, then it indicates that they are betting on good things happening. For Sirius, the open interest for the May $3 call is very substantial. The ask is 20 cents. This means that there are many people betting that Sirius will be above $3.20 sometime between now and the third Friday in may. On the put side the May $3 is also the bigger interest. However, the interst in calls is far greater than in puts.

    Today 900 $3 call contracts were written. An interesting item to note is that volume on $4 May calls was 1,251 contracts. Thus, the largest open interest is with the $3 calls on an overaqll basis, but there today the bigger interest was in the $4 calls.

    In my opinion it is best to watch how the options of an equity relate to the pps of the equity over a period of time. you will see patterns develop.

    By Blogger SSG, at April 30, 2007 3:55 PM  

  • OK, who are you sleeping with over there at Sirius??

    Your subscriber estimate: "If I had to throw an exat number I would place it at 557,000."

    Actual reported on May 1st: 556,490.

    Another reason I look at your column twice a day. Good job !!!

    By Anonymous Anonymous, at May 01, 2007 8:17 AM  

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