Wall Street is concerned about soft retail sales of satellite radio receivers, but Sirius CEO Mel Karmazin says his retail partners say they’re expecting a good holiday sales season – "and we hope that they’re right." Sirius reported that its Q3 net loss fell to 120.1 million from 162.9 million a year ago.
On the surface the quarterly numbers looked OK, with net subscriber additions better than expected, but the company’s stock price fell as analysts found figures under the surface worrisome. "The high ramp of OEM over the last two quarters will catch up on the churn rate over time – as the higher OEM net adds for the quarter are understating churn as those subs are subject to around a six contract month period where, by default, no churn can occur," warned Jonathan Jacoby at Bank of America. He has also been less optimistic than many of his peers about the likelihood of the proposed merger with XM winning regulatory approval. "The Street remains solely focused on the merger while ignoring the fundamentals," he said. And he found some real negatives in the fundamentals, with subscriber acquisition costs and cash EBITDA (a negative number, of course) worse than expected.
In his conference call, Karmazin remained optimistic about winning merger approval for a closing before the end of the year. How long will it take to close the merger once the approval comes, one analyst asked? Karmazin said if the approval comes on Monday, the closing will be on Tuesday.
RBR/TVBR observation: Here are some numbers we found really interesting in the report from Sirius. In Q3 the company had 999,284 gross subscriber additions, but it deactivated 474,346 previous subscribers. They are almost to the point of losing one subscriber for every two new ones added.