On January 2nd, over 90% of stocks in the market rallied on news that the "Fiscal Cliff" had been avoided, or at least postponed, in a last minute House and Senate vote over the New Year's holiday. The NASDAQ closed up 3.07% alone, a huge jump for the index. Sirius XM (SIRI) was no exception, rallying $0.13, or 4.5% to close at $3.02.
Cause for celebration? I'm not so sure that is the case, yet. While I don't see much downside from these levels, I do believe that investors should look more towards a rally in shares of Sirius XM on news about the company, and not just overall euphoria in the market.
Consider what I wrote back in November at $2.70:
I'll put it plainly. This is the time to buy. Before 2013 guidance is released, before Liberty Media (LMCA) goes to 50% control, before share buybacks are announced, and before Sirius XM's shares hit the next wave up. You may argue that a month ago, two, three, were the times to buy but the past is the past, we can only invest from today forward. If you're not in, or seeking to add to a position, you need a good entry point. For that, "yesterday" is an impossibility. One can mire themselves in the millions of questions such as "When will Liberty find a new CEO?" or "How does a 0.004% difference in churn affect subscriber rates?" and skirt that elephant for another week or two or three, or one can jump on that elephant now for the ride of their life.
It's your choice. My suggestion? Keep it simple. The answer is staring you straight in the face. Don't play chicken with what could be a few pennies. Grab a long position while the market flounders here, hold tight through buybacks assuming the company continues to perform well, and make for yourself a handsome reward.
Since that time there have been a couple developments with the stock. First was an announcement of a $2 billion share buyback plan coupled with a one time special dividend of $0.05 which would have lowered one's cost basis to $2.65. Second was the announcement of Jim Meyer as the interim CEO to replace Mel Karmazin. Third was the setting of CRB rates for Sirius XM through 2013:
The Judges determined that the appropriate Section 114(f)(1) rates for Preexisting Satellite Digital Audio Radio Services for 2013-2017 are 9% of Gross Revenues for 2013, 9.5% for 2014, 10.0% for 2015, 10.5% for 2016 and 11.0% for 2017.
All of these pieces of news should be viewed as favorable to the stock, and it appears Wall Street has noticed as shares closed at a high of $3.02 Wednesday or a profit of 14%, if including the dividend, in six weeks.
This is not the highest the equity has seen in recent history. Upon news of the new CRB rates, which came in quite favorable, shares of Sirius XM shot up over 15% in just minutes and hit $3.10 in after hours trading. A "short squeeze" was what I was expecting. While some have humorously taken extreme offense to my use of the term, I maintain that I was correct here. This 15% rise was likely due to a considerable number of shorts covering to the extent that they were most certainly squeezed.
But I feel there is still more to come, and that the punches may keep on coming when David Frear speaks at the Citi Global Internet, Media and Telecommunications Conference on January 9th at 9 AM PT. Punch 1 was the CRB rates. Punch 2 has been the fiscal cliff resolution. And Punch 3, and hopefully a knockout, will come from Frear's words. What am I expecting?
Simple. I'm expecting an announcement and confirmation of over 2 million net subscriber additions for 2012. Not only will that be exceptional performance in a year in which Sirius XM raised subscription rates, but it may hint at the potential for 2013 if auto sales continue to increase at a steady rate. Investors should keep in mind that under Sirius XM's subscription based system, as costs are paid for, additional subscribers come at less expense than previous subscribers. Less expense at relatively steady ARPU means future customers tend to be more profitable. When net subscriber gains outpace previous years, well, that's a big deal and a very big positive for both the company and the stock.
It's great that Sirius XM has rallied with the overall market, but I do not think this is the rally that investors should be seeking. Because of this I do not think investors should be disappointed if share prices retrace over the next few days or seem to stagnate. Picture a boxing match in slow motion as the other fighter wavers back and forth, dazed. You know punch 3 is just around the corner. You can see it coming.
Will Frear finish the match on January 9th and knock Sirius XM up to higher prices with his words? The audience waits with bated breath.
Disclosure: I am long SIRI.