3 Reasons Sirius XM Will Go Up Tomorrow

Why so nervous, Sirius XM Radio (Nasdaq: SIRI  ) investors?

The satellite radio provider reports second-quarter results tomorrow, and it's easy to see why cautious optimism is in short supply. The shares have stumbled badly after each of its previous quarterly conference calls, despite posting solid results.

Back in May, shares of Sirius XM tumbled 4% the day it delivered healthy first-quarter financials. Four trading days after its report, the satellite radio giant's stock had shed 18% of its value.

Things weren't any better three months earlier, when Sirius XM's stock took a 5% hit after its fourth-quarter call, plunging 17% over the course of two trading days.

Will it be different this time? I think so. Let me count the reasons why.

1. You can't sell on the news when you didn't buy on the rumor
An important factor behind the stock's smacks was that there was some serious buying leading up to the reports. Shares of Sirius XM climbed 15% between the fourth and first quarters -- and a scintillating 75% between the third and fourth quarters before that.

There hasn't been any kind of buildup this time around. The stock is actually trading below the $1.23 it closed at before announcing its previous report.

Sirius XM announced inspiring subscriber gains before the actual results were posted in each of the three periods. They may have been baked in previously, but the oven has simply been preheating this time around.

2. The bear's cave is getting crowded
There were 217.3 million shares of Sirius XM sold short as of mid-July by investors betting on the stock price decreasing. That's far more than twice the bearish wagers placed heading into its fourth-quarter report six months ago.

This is huge. Some may argue that any growing collective of pessimists is a reason for concern, but to me it always smells like a potential short squeeze. Even a moderately favorable report should be enough to trigger a wave of short covering, driving the stock higher as the shorts zero out their positions.

3. The prospects continue to get brighter
Sirius XM has tacked on 1.1 million net subscribers over the past year. Churn and conversion rates are improving. Auto sales have been buoyant. There aren't a lot of trends grinding against Sirius XM's goals, as the media titan continues to revise its outlook higher with every passing quarter.

Potential disruption has been silenced recently. Pandora has grown to 60 million registered users, but that is mostly a PC and Wi-Fi phenomenon. Now that AT&T (NYSE: T  ) -- and inevitably Verizon (NYSE: VZ  ) -- are leading the way in metering data on smartphones, drivers may think twice before streaming the presumably "free" music-discovery service on their ticking data plans.

HD Radio? It's been nearly three years since Ford (NYSE: F  ) became the first automaker to make HD Digital Radio available on multiple product lines. Where art thou, buzz? HD Radio does open up the programming choices, but this is still ultimately terrestrial radio that needs to be monetized through advertising.

Where are the other bugaboos hiding?

Liberty Capital (Nasdaq: LCAPA  ) isn't going to convert its 40% preferred share stake or bail on Sirius XM, even as John Malone shuffles around his holdings.

Howard Stern may be channeling Brett Favre as he ponders his future plans, but his choices essentially boil down to retiring or re-upping with Sirius. Terrestrial heavies Clear Channel and CBS (NYSE: CBS  ) can't pay what Sirius can dish out. Going solo through a premium Web-based channel has hit a roadblock now that AT&T is killing unlimited data plans for new buyers of Apple's (Nasdaq: AAPL  ) iPhone 4.

A Stern retirement party wouldn't derail Sirius XM, because subscribers aren't likely to dump the service and go back to terrestrial radio. The move would also free up Sirius XM's programming budget to snag some more polarizing stars from the AM and FM dials.

Auto sales will face tough comparisons in the latter half of the year, but as long as cars keep selling, the self-pay customers will follow after their free trials run out.

Sirius XM is in far better shape than its stock price suggests. The ingredients are in place for a respectable reaction tomorrow.

Stop gnawing on those fingernails, bulls. You're almost at the bone.

What are you expecting out of tomorrow's report? Share your thoughts in the comments box below.

Apple and Ford Motor are Motley Fool Stock Advisor selections. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 03, 2010, at 1:48 PM, neeke1 wrote:

    Siri stock will rise to $1.10 or more after financial report is released.

  • Report this Comment On August 03, 2010, at 3:24 PM, cajun021 wrote:

    Im hoping your correct in your assesment. Ive been reading a lot of bearish post from other public boards for tomorrows CC. This is one of the few Ive read that has a positive outlook. Pre Market should give us a good idea what will happen.

  • Report this Comment On August 03, 2010, at 6:44 PM, circuithacker wrote:

    When you wrote your article, did you research the number of consumer complaints about XM and their "unilateral renewal" contract and mysterious billing charges?

    How did I come across these? When my XM contract expired, they tried to renew me for 5 years without my authorization -- they conveniently changed their user agreement to allow this. Fortunately, I'd canceled that credit card due to security issues at TJX. So before renewing I decided to see if XM had any "issues" and did an internet search.

    When I found entire sites dedicated to those issues and credible customer complaints, I decided not to re-up. I wouldn't be surprised if that's a trend unless XM drastically changes their customer service.

  • Report this Comment On August 03, 2010, at 7:25 PM, BuffettIII wrote:

    Rick:

    Much has been made of the 40% stake Liberty owns. Bears point to it as a liability, even though Liberty has said firmly time and again, "We ain't liquidatin'." Bears need a new stick because they've been beating that dead horse so much.

    Consider this. Could it be that even Dr. Malone didn't know how things were going to shake out 18 months ago? Could it be that the 40% preferred was merely meant to securitize the debt if Sirius revenue went sour? Could it be a mere insurance policy and nothing more?

    *gasp!*

    Ok, seriously, it isn't rocket science. What about pass through losses, you say?! Don't overthink the situation. If you loan someone money, you ask for collateral. That is lending 101.

    However that litte "security deposit" has exploded into one of the best investments Liberty has ever made. And John moves up the Forbes list.....

    Cheers,

    B-III

    Long: SIRI

  • Report this Comment On August 03, 2010, at 9:41 PM, MegaEurope wrote:

    Pandora and other internet radio is obviously growing much faster than Sirius XM. And 3G cost structure is far superior to satellite radio cost structure. The only question is when the interface for car radio via 3G becomes easier than satellite radio.

  • Report this Comment On August 03, 2010, at 11:20 PM, Grrrrt wrote:

    Commercial packed Pandora on bandwidth metered 3g to compete with commercial-free SIRI on sat??? lol Oh, oh.. just quit clowning already... that's way too funny!!! My side is hurting from all the laughing. You guys are SIRUS-ly funny. Please join the circus or something. Don't waste all that talent. ROFLMAO

  • Report this Comment On August 03, 2010, at 11:48 PM, MegaEurope wrote:

    There are over 3x as many Pandora listeners as Sirius subscribers. Pandora is the most downloaded app in the Android Market. And millions of us listen to internet radio over unlimited data 3G without any problem. The idea that data plans are about to be limited is a total red herring.

    I don't really care about ads (they are much less obtrusive than terrestrial radio), but if I did I could upgrade to Pandora One or Rhapsody.

  • Report this Comment On August 03, 2010, at 11:59 PM, ThongLover854 wrote:

    HAHAHAHA....Stop it MegaEurope! Grrrt was right...you are too funny.

    Let's break this down shall we? I am a "listener" to Pandora. What i mean is i count as a listener. I loaded the app onto my phone and have tried it twice. Listening to music on it can be very nice. Of course, I was sitting at home in my office. I would bet a bunch of crisp dollar bills that if i wanted to drive for three hours, i would have various troubles with the service.

    But, even if I had no trouble, i would never utilize this service alone for one single reason...CONTENT. I can listen to most major news stations, sports, stocks, comedy...dozens of radio stations with live DJ's popping in rarely to give you news and a little friendly chat. THERE IS NO COMPETITION TO SIRI.

    That is WHY they are going to NET INCREASE about 1.2 MILLION SUBS this year ALONE! They are paying subs...cash...money.

    How long can Pandora make it as royalties increase...and bandwidth is charged for...a red herring? It's already being done silly.

    Pandora is what it is...free internet radio. You know what they say...

    You get what you pay for...

  • Report this Comment On August 04, 2010, at 10:14 AM, themaxpain wrote:

    Does returning to the price it traded the day before earnings were announced count as "going up?"

    The market doesn't seem too impressed with the report, and the wall at $1.05 seems to just grow and grow.

  • Report this Comment On August 05, 2010, at 9:49 PM, vitof wrote:

    I have very little faith in SIRI. I've more than tripled my investment, but I've put more in a slot machine. That's the only way I'm looking at this particular stock. Their monthly service is expensive, their customer service is the pits The comedy stations are all repetative.Howard & Rosie give me a break. they're not original anymore. As you can tell, I didn't renew. I've had two autos. Renewed once cancelled twice. Maybe that's why Wall Street doesn't have any faith.

    They should dump some of the big names and spend that money on conent and bring customer service to USA.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1256611, ~/Articles/ArticleHandler.aspx, 9/18/2014 9:50:06 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement