I'm often perplexed when I read some articles about Sirius XM (NASDAQ:SIRI).
Some may say it is because I spend too much time on a single equity. Sirius XM is, after all, 100% of my portfolio at the moment. Some may consider me to be intolerant of viewpoints which differ from my own. I don't think that's the case, but I am having a really hard time with the barrage of articles lately by Stocksaints on Sirius XM.
Why do I have such difficulty? Because many articles are not based in facts or reality, but rather ideas conjured in the author's head about what he thinks sounds like a good idea at the time. Where's the value in that?
Case in point. Stocksaints' most recent article titled "Sirius XM Needs To Raise Prices."
With the radio market booming and demonstrating demanding for more sounds, I believe now is the time for Sirius XM to consider another rate hike.
Sirius XM has not discussed raising prices. Sirius XM has not hinted that a price increase is on the horizon. And to my knowledge very few investors even think it would be a good idea for Sirius XM to raise prices after the company just raised prices in 2012. A quick look at the comment section of that article will show resounding disagreement with the author.
Is news surrounding Sirius XM so boring now that we must conjure up ideas and form an article around them?
Let's take a look at why I disagree with Stocksaints.
Stocksaints says :
consumers will gladly pay for it
With Apple and Google entering the mix, Sirius will want to continue investing in its platform so that it can continue to differentiate itself by delivering the best audio content that it can. Doing this is going to cost money.
First off, consumers will not gladly pay for another increase in subscription rates to Sirius XM. The data does not support this.
As ARPU (average revenue per user) has not reflected an increase relative to the previous price increase, it is quite obvious that the company has had to offer discounting in order to retain subscribers. Further increasing the subscription rate may very well push more subscribers to leave, increasing the need for retention discounting and thus resulting in the company shooting itself in the foot. Getting "more" from "less" and "less" from "more" is a huge mistake.
On the off chance that Sirius XM requires cash to be invested in content to differentiate itself from the likes of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) and their music only services, then it has ample liquidity available to do so. After all, the $2 billion buyback program, likely to be increased to $4 billion, is certainly something that is not set in stone. If money is needed, it is available. I trust the company will handle its finances wisely.
I don't think Sirius will want to get into the habit of raising rates ever two years, so this increase should be meaningful enough to account for (among other things) inflation and other costs such as royalties, debt reduction and long-term G&A expenses. Plus, this will help offset weakness in ARPU, which the company can use to spend on content to get that metric back up. Accordingly, I believe $2.00 would be a nice round number.
It's great that the author has decided how he would run things if he were captain of the Sirius XM ship. But let's be honest here, these ideas really aren't representative of what the actual captains of that ship have communicated.
- Inflation is at record low levels. Costs have decreased at Sirius XM. There is no need to raise prices due to inflation or increased costs.
- Royalties are paid for through a fee that Sirius XM charges. As royalties increase, so does this fee. There is no need to doubly raise prices on subscribers for royalties.
- Debt has been reduced extensively and is easily serviceable. There is no need to raise prices in order to better service debt.
$2 may sound like a nice round number, heck, I bet $10 sounds even better! But I don't think Sirius XM should start jacking up prices in a competitive market.
In the end, though, it doesn't matter what Stocksaints or I think. All that matters is what the company has communicated, and the simple fact of the matter is this.
No price increase is on the table. Period. End of story.
Investors would do well to focus on the facts and steer clear of musing about what they would do if they were king for a day.
Additional disclosure: I am long SIRI January 2014 $2 and $2.50 calls. I will be liquidating my SIRI position and be out for a few days for a play in early June after which I will be buying back in to SIRI. This has nothing to do with my views on SIRI and is merely an opportunity grab.