A 1-2-3 Punch For Sirius XM

Dec.17.12 | About: Sirius XM (SIRI)

With Sirius XM (NASDAQ:SIRI) seeing an impressive run Friday due to a favorable decision by the Copyright Royalty Board, investors may be asking what is next, and contemplating what it might take to see this equity pass $3.00 per share and stay above that level. Well, wait no more. There is a distinct possibility that Sirius XM might have a few catalysts that can make this equity pass that $3.00 mark, and if things play out right, stay there.

Sirius XM may just have a few compelling events that can make a huge difference. This could be the proverbial 1-2-3 punch that investors love to see. Timing is everything here, and if Sirius XM times things right it can not only defend the share price, but propel it upward as well.

Punch 1 - Left Jab

Sirius XM scored on an initial jab with the decision of the Copyright Royalty Board. The company can follow it up with another jab now. That follow up jab would be releasing its promised version of Sirius XM Personalized Radio. This is part of Sirius XM's Internet radio service. It is what will take Sirius XM to the next level and is an answer to the likes of Pandora (NYSE:P), Spotify, and Slacker.

Had the royalty rates for the satellite side of the business been higher it could have been quite possible that Sirius XM would water down the service in order to offset costs. The Internet streaming rates are more expensive than the satellite radio streaming rates. Sirius XM has an Internet side of the business, but to date has not really pushed it or marketed it. In essence, the company would rather have consumers listen over satellite than over the net. With very reasonable rates established for the next 5 years, the company can actually afford to make Sirius XM Personalized Radio more compelling, taking on other audio entertainment providers head on.

Essentially, Sirius XM now has the latitude to make its personalized radio even more compelling than it otherwise might have. Personalized radio can become more central to the service than what many may have realized. Yes, the company will pay higher royalty rates on content streamed through the net, but the CRB decision on current rates make things much more flexible for Sirius XM.

Punch 2 - Left Cross

The left cross is also tied directly to the announcement regarding royalties. As yet the company has not released any financial guidance for 2013. Perhaps one reason for the lack of clarity has been worry about what the royalty rates would be. With the royalty rates now understood, Sirius XM is pretty much free to announce 2013 guidance at any time.

If the company makes announcements in stages it could do very well for the equity. Because Sirius XM now has the cost side of royalties in hand, it is free to run some numbers and get official projections out to the street.

The street has been anticipating a great year for the company. These rates will make the year even better. One key element for Sirius XM is to set the proper stage. Outlandish expectations can be dangerous. I have seen it happen time and time again. Setting the proper level of expectation can send the equity upward on a realistic path rather than one of hope.

Absent guidance I have seen investors expect EBITDA in 2013 to be $1.3 billion, followed by $1.25 billion as Q3 numbers were getting ready to be released. I then saw the expectation shift down to $1.2 billion, and ultimately $1.15 billion when the company announced Q3 official results. Somewhere in the course of a couple of months investors lost $1.5 billion in EBITDA. This is the danger when the company is not outlining guidance. With the royalty rates now understood the company can set the stage. Even if the baseline is $1.5 billion in EBITDA, it gives clarity and clarity helps the bullish stance.

Guidance will verify models. Guidance is important, and if the company times the release carefully, it could help keep the upward momentum rolling.

Punch 3 - Right Uppercut

Hitting 2 million subscribers in 2012 would be huge for this company. It is not an easy task, but can be accomplished. If Sirius XM can follow up Personalized Radio and guidance with an impressive subscriber number that beats 2 million it would be a tremendous combination. Last year Sirius XM announced subscribers right after the new year. If the company does this again on top of other compelling news, it could set the stage for an impressive start to 2013.

Want more? We could also see more finality in the FCC decision regarding Liberty Media (NASDAQ:LMCA) control. We also have share buybacks approved that can defend the price. In addition to this we have the short interest at a pretty high level. If Sirius XM can put together three compelling announcements timed correctly it can cause a run that would mimic the run from $1.80 to $2.40. Bear in mind that there are factors than can also work against the company. Hitting less than 2 million subscribers will be a success, but not as compelling of a success. There is also the macro economic situation which has many investors considering selling this year rather than face the new tax structure of last year.

There are a lot of positives to consider. Stay Tuned.

Disclosure: I am long SIRI, LMCA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Pandora.