Seeking Alpha
StockSaints, StockSaints (3 clicks)
Long/short equity, special situations, newsletter provider, options
Profile| Send Message| ()  

In our last discussion of Sirius XM (SIRI), we outlined several reasons why the company was no longer a speculative bet. In fact, we made the case that even though the stock had already posted double-digit gains on the year, it was still poised to deliver more profits to investors. In the article, we said the following:

Even though Sirius has already gained more than 16% year-to-date, I believe the odds favor a push to $3.50 and possibly $4.00 before the third-quarter conference call.

On Wednesday, Sirius, which is the authority on premium radio, announced its presence with considerably more power than we expected. The stock surged to $3.59 on an inordinate volume level of more than 112 million shares. Remarkably, this occurred on the same day that Google (GOOG) announced it was entering the internet radio market. Raise your hand if this caught you by surprise?

Clearly, the search giant grew tired of all of the rumors surrounding Apple (AAPL) and its entry into the radio market. Although Apple's arrival into radio streaming has been widely speculated upon, Apple is expected to officially announce its music service next month at Apple's Worldwide Developers Conference, according to sources.

With all of this in mind, including Sirius XM's strong first-quarter performance, on Tuesday, I wrote an article and advised investors that it was time to bail on Pandora (P). Not surprisingly, the hate-mail immediately poured in. What was a surprise, however, was that some of the mail came from some prominent authors in the blogosphere. I'm not going to call them out here, but they have to be blind to not see that Pandora, despite its popularity, will begin to play some sad tunes.

Meanwhile, Sirius XM's surge on Wednesday, which produced almost three-times its daily volume, brought about more speculation, including when will the fight begin to see who will put out the cash to acquire its assets. On Monday, I made a case for why Apple will step to the table and possibly offer $4.50 per share.

Given what Apple has been able to do for iTunes, Sirius revenue growth under Apple can possibly double to $10 billion by the second year. Remember, Apple just reported $43.6 billion in revenue in its fiscal second-quarter. However, and more importantly, Sirius furthers Apple's strength to dominate the automobile dashboard, where Siri, Apple's voice navigation assistant, is already gaining traction.

However, after Sirius surged yesterday to a new 52-week high of $3.59, an offer of $4.50 now looks too cheap. At the rate Sirius is soaring, the stock will likely reach that target by the end of the year. That said, as noted above, I did mention that Sirius would likely see $4.00 by the third-quarter conference call.

Here again, it's about Sirius' assets and how highly coveted they've become. With Apple and Google entering the mix, this all but certainly will be the end of Pandora. Still, I'm not going to pretend that I saw yesterday's surge coming. But things are slowly beginning to make sense.

Do you remember last year, when Google signed its content-sharing deal with Sirius? This is now the beginning of what has been Google's friendship with the dominant name not only in the premium radio business, but in the automobile. Spotify and Pandora can't compete there. Sirius, which has roughly 20 million paying subscribers, should be looked upon as a gold-standard, if not a goldmine to both Google and Apple.

Bottom Line
With the stock surging on Wednesday on three-times the volume, the Street understands what's about to unfold. To current Sirius investors that have held to this point, you're about to have some very tough decisions to make. Your fortitude will be tested with each new high. The stock is now 11% away from $4.00. You can start counting that as money in the bank.

Source: Sirius XM: Google And Apple Fight For Its Rights