The auto industry’s sales troubles show no signs of abating, with JD Power predicting new vehicle sales will fall 27% in May from a year ago as retail inventory at the end of the month will be less than one million vehicles for a 12th consecutive month. It now expects 13.6 new vehicles to be sold in 2021, down 3.3 million from last year, as demand far outstrips supply.
“The commercial environment is bound to evolve over the course of the year. Production volumes are expected to improve in the second half of the year, which will lead to higher sales rates,” said Thomas King, president of data and analytics division at JD Power. “Record levels of pent-up demand from new-vehicle buyers will mean any additional production should be sold quickly.”
It’s this prospect that makes SiriusXM optimistic it will see improvements in its subscriber numbers as the year progresses. The satellite radio company is hyper-dependent on the automotive market, and chief financial officer Sean Sullivan told an investor conference this week that they believe the majority of their half-million new subscriber additions planned self-payment would come in the second half of 2022.
“In the context of the current macro economy, I think most continue to see supply chain issues and obviously inventory supply issues. That being said, I think we all believe there is significant pent-up demand for automobiles,” Sullivan said. “Hopefully you’ll see some growth in the second quarter,” he told JPMorgan’s global technology, media and communications conference.
SiriusXM said the number of paying subscribers for its satellite radio service fell slightly 25,000 in the first quarter and its total number of subscribers fell slightly to 34 million as of March 31.
Even with inflation at its highest level in four decades, Sullivan said SiriusXM’s churn rate — the measure of how many people are canceling the service — continues to be “really low and strong” despite pressures on consumers. price. “Some of that is definitely down to declining auto sales,” he said. “But I guess it speaks to the strength of our consumers and the strength of hopefully the perceived value of the product we offer.”
The expansion of SiriusXM’s digital business has come at an opportune time, aimed at offsetting the slower pace of growth in satellite radio.
“Given the nature of our content, we think there’s an incredible opportunity there,” Sullivan said, telling the investor crowd he had attractive profit margins. “It’s a small part of our overall subscriber base. But I think when you look, for consumers who are streaming using our product on a standalone basis, their consumption habits are no different than our satellite business. So the real challenge for us will be finding them, engaging them and getting them out there,” he said.
Another digital challenge for SiriusXM has been the steady decline in Pandora users. The streaming service had 50.6 million monthly active users in the first quarter, up from 55.9 million a year earlier. And Pandora’s total hours tuned were 2.68 billion in Q1 2022, up from 2.87 billion in 2021.
Sullivan said they were “moderating” the declines and even with those declining numbers they were able to monetize loyal Pandora users. He added that they were also “learning about the product” and what features could reverse the trajectory of monthly active user counts.
The SiriusXM Podcast Strategy
SiriusXM has invested hundreds of millions of dollars in the podcast business over the past few years, with its latest deal coming this week as it announced a deal to acquire Team Coco from Conan O’Brien for a grossed $150 million.
“You can see he could do something with us on Pandora. There will be a Team Coco Sirius XM channel on the satellite and digital side of the business. So I think our differentiation and cross-platform opportunities will be our competitive advantages,” Sullivan said. “Certainly, we want the scale and reach to grow and monetize advertising. But at the same time, we want it to improve our overall subscription value.
Sullivan said SiriusXM is in podcasting “for financial return and long-term reward,” but he sees the ad market as “still developing” as advertising evolves from primarily direct-response customers to brand advertisers. “CPMs have been strong,” he told investors, explaining that they had seen “some gradual caution” in a few ad clients as the direction of the economy became less certain.
“There has been some caution in the CPG, the retail, the automotive space, in light of the macro factors,” Sullivan said. “That being said, we continue to see strong demand for at least our audio products.”