Sirius XM Will Have a Lot to Prove on Thursday

This is a great time to be a Sirius XM Radio (NASDAQ: SIRI  ) investor. The satellite radio provider closed at $4.10 yesterday, and that's yet another six-year high for a company that seems to be hitting fresh multiyear highs with every passing week. It set yet another new high today. 

Remember when the stock price bottomed out at a nickel four years ago, when it seemed as if Sirius XM was going to file for bankruptcy? The stock's been a sweet 82-bagger for investors since that point.

But just as nothing grows in the shade, the same can be said of rapidly appreciating share prices. Major upticks need to be earned, and that's what will have to happen on Thursday morning when Sirius XM steps up with its fiscal third-quarter financials.

Growth and profitability have been steady and consistent at the media giant over the past few years. Analysts see revenue climbing 12% to $969.7 million, fueled by healthy subscriber growth and increasing average revenue per user. Wall Street sees profitability doubling to $0.02 a share, though it needs to be said that this would be its fourth consecutive quarter of earning $0.02 a share.

There are certainly plenty of reasons to believe that Sirius XM could surpass expectations. 

Despite last month's arrival of Apple's (NASDAQ: AAPL  ) iTunes Radio -- and Sirius XM not pre-announcing subscriber figures earlier this month as it has sometimes in the past when the news is outstanding -- there's little reason to believe that growth won't be robust. New-car sales have been booming for several quarters, and this is the lifeblood of new subscribers. Sirius XM has also been working with used-car dealers -- and more recently service centers -- to create financial incentives to get showrooms to promote the activation of dormant Sirius and XM receivers.

New accounts are naturally very incremental to Sirius XM's bottom line given its fixed overhead and earlier net operating losses that gnaw away at today's tax bite. But they also tend to pay more once they're off their free trials since they're not grandfathered into the lower rate that went away last year. They are also often given trials that include online streaming that becomes a premium add-on down the line.

As for the bottom line, it's been more than a year since the last time that Sirius XM exceeded Wall Street's profit target. Why could it be different this week? Well, Sirius XM has a ton of shares outstanding, but it has been aggressively tackling its gargantuan float. It has gobbled up $1.6 billion worth of stock over the past 10 months, and you know what happens to simple division when the numerator stays the same but the denominator gets smaller. Tack on the push for new high-margin subs, and no one should be shocked if Sirius XM manages to bunt its way to $0.03 a share on Thursday.

Yes, the quarter itself ended with Apple turning heads with the free iTunes Radio. Apple got 11 million to check it out during its first week of availability. As more new cars offer Bluetooth connectivity, won't iTunes Radio eat into satellite radio subscriptions? Well, iTunes Radio on smartphones is limited to the iPhone. Besides, Sirius XM has done just fine facing the streaming revolution.

Sirius XM will have plenty to prove in justifying its recent gains, but there's little reason to expect the financials to be anything less than solid.

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