Sirius XM's ( SIRI ) plans to report its Q2 earnings on Tuesday, Aug. 2nd. We take this opportunity to briefly look at some of the aspects of the earnings that investors should keep an eye out for. The satellite radio company's success has been hinged on its ability to successfully monetize through vehicle installations and therefore, this health of automotive market remains a crucial factor. Sirius XM has ties with major automobile makers such as Ford ( F ), GM ( GM ) and Toyota ( TM ), which help drive its presence in the U.S. automobile space. The automotive subscribers represent, by far the most important source of revenues and therefore two aspects always determine the company's financials: vehicle sales in the U.S. and the penetration of Pandora within these.
Our price estimate for Sirius XM stands at $2 - about 5% below the market price.
In its Q2 2011 earnings release, the automotive company Ford mentioned that it expects U.S. vehicle sales to climb to about 13-13.5 million in 2011 implying about 10% to 15% growth over last year. We maintain our automotive subscriber growth expectations of about 15% assuming SiriusXM benefits from increased sales proportionally with added benefit from increased penetration. During last quarter, the company has struck deals with Hyundai and GM who will be offering 3-month SiriusXM subscription on pre-owned vehicles.
If vehicles sales hit the upper estimate provided by Ford, our subscriber growth estimates could turn out to be conservative. We'll look forward to SiriusXM's earnings announcement to better gauge the growth trajectory in 2011.
Update on Sirius Radio 2.0
In addition to the above, the investors should also watch out for any updates on SiriusXM 2.0 that the company might provide during its Q2 earnings announcement. This next version of the service is likely to improve customer experience and drive higher penetration. This service will feature time-shift recording capabilities, increased storage for portable hardware devices, and on-demand content channels. We discussed this in a recent note Smartphone Chips Can Lift Sirius XM's Retail Subscriptions.