Sirius XM Holdings (NASDAQ:SIRI) investors are feeling pretty good these days. Shares of the satellite radio provider hit 12-year highs on Friday, setting the stage for its upcoming financial report. Sirius XM announces its fourth-quarter results on Wednesday morning.

One of the market's biggest winners is nearly a 120-bagger since bottoming out at $0.05 nine years ago. Sirius XM has established itself as consistently profitable and growing media giant, but investors know that even the best companies can get tripped up during earnings season. Let's look at some of the things that can send Sirius XM stock lower when it reports this week. 

Dolly Parton at a Sirius XM Town Hall interview.

Image source: SiriusXM Radio.

1. Good news may already be discounted

We already know some of the numbers. Sirius XM announced that it closed out 2017 with 32.7 million subscribers, a better-than-expected gain of 1.39 million for the entire year. It also clocked in with 27.5 million self-pay subscribers, 160,000 more net additions than it was targeting at the end of the third quarter. 

Sirius XM didn't divulge its actual financials, but it did say at the time that it expects to meet or exceed its earlier full-year guidance for revenue, adjusted EBITDA, and free cash flow. The satellite radio provider also announced last week that its board has increased its authorization to repurchase shares by another $2 billion. Buying back stock is how Sirius XM has been taking advantage of its bountiful free cash flow to growing its profitability on a per-share basis. In short, with strong subscriber numbers, preannouncing no misses for the fourth quarter, and a deeper commitment to buybacks, it may be out of rabbits to pull out of its hat this week.

2. Guidance may seem tame by comparison

Sirius XM provided its initial forecast for 2018 three weeks ago, and that's unlikely to change when it reports on Wednesday.

  • Self-pay net subscriber additions for all of 2018 will be roughly 1 million.
  • Revenue will clock in at approximately $5.7 billion.
  • Adjusted EBITDA will be roughly $2.15 billion.
  • Free cash flow will be about $1.5 billion.

The outlook itself doesn't suggest a lot of improvement, and since it already said that it will meet or exceed its 2017 targets, the comparison may look even worse if the fourth quarter is a blowout performance. Suggesting that a strong quarter can hurt Sirius XM stock is an outlandish notion at first, but let's dig in a little deeper. Revenue of $5.7 billion in 2018 suggests just 5.6% growth over the $5.4 billion it was forecasting in 2017 back in October. Sirius XM has already said that it will at least match that mark. The higher it lands, the weaker the implied growth will be in 2018.

Things get even hairier for the other metrics as its guidance was already suggesting a marginal increase in adjusted EBITDA and a slight decline in free cash flow based on its earlier outlook for 2017. Sirius XM has historically put out conservative guidance that it pushes higher as the year plays out, so there will always be that silver lining.

3. Pandora may be more of an albatross than an opportunity

Sirius XM invested $480 million in Pandora Media (NYSE:P) convertible preferred stock last year, effectively nabbing a 19% piece of the streaming radio pioneer. The deal made sense at the time, but Pandora stock has gone on to shed more than half of its value. 

Sirius XM is big enough to withstand the slide in Pandora, but it will get sorely tempting to either buy all of Pandora or unload its stake at current price levels. Sirius XM can either distance itself from Pandora's struggles by moving on or it can pony up money to buy it out for a lot less than it was reportedly willing to pay two summers ago. Any insight or update into its strategic plans for Pandora can help or hurt Sirius XM at this point. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.