Sirius XM: Talking Apple, Google, Netflix And The Shorts

| About: Sirius XM (SIRI)

I don't always talk about stocks under $5, but when I do, I prefer Sirius XM (NASDAQ:SIRI). That's because in SIRI-Land there's never a dull moment. While the stock has always enjoyed a legion of faithful followers, the company's recent success coupled with what is considered an imminent death to its chief rival Pandora (NYSE:P), has raised the polarizing status of the satellite radio giant.

Earlier this week, I suggested that the stock had reached its peak for the next couple of months. As of Wednesday's close, the shares are down almost 10% since reaching a high of $3.63. But understand that this has nothing to do with Sirius' fundamentals nor does it have to do with anything market-related. Don't forget, there was a point when the market was going down and Sirius was heading up.

Instead, my theory is that Apple's (NASDAQ:AAPL) expected entry into the realm of music streaming has caused a panic. It's an event that has brought Pandora to its knees. Sirius is just an innocent bystander caught in the line of fire - at least for now, anyways. The company will eventually duck and get out of the way. In the meantime, though, weak investors couldn't stomach risking the gains that they've earned. I can't fault them, not when everyone is proclaiming the so-called "June swoon."

That said, now we have an idea of why the short interest on Sirius' stock has been so high. In the last three SI reports issued by the Nasdaq, the shares sold short on Sirius have averaged 379 million. Keep in mind that these numbers trail for two weeks. The last three reports cover data for a month and half.

During that span, though, Sirius has jumped up 20%. Yet the shorts held their ground. This is while many investors called them dumb for what was seen as an overly risky bet. But the shorts don't look so dumb today, do they? And with the average days to cover being just eight days, it seems that they've been in-and-out of the stock with relative ease.

Plus, those that are still holding are likely waiting to see what Apple unveils next week at its Worldwide Developers Conference. I expect many Sirius investors will disagree with crediting the bearish hedge. But they've made 30% on Pandora over the past two weeks. And as an Apple shareholder, I can tell you that the shorts have made a killing betting against Apple over the past nine months. So I don't think Sirius should be any different.

Nevertheless, Sirius is in a great position here. And I don't think that the company has anything to fear regarding Apple. But I do have some questions. For instance, in the recent shareholders meeting, management discussed expanding content rights and exclusivity. Given Google (NASDAQ:GOOG) has entered the market with its All Access service, and Apple is expected to follow, content rights and exclusivity has suddenly gotten more expensive. How will Sirius pay for these?

Essentially, Sirius may soon find itself in the same predicament as Netflix (NASDAQ:NFLX). If it's true that "content is king," it can't command a "twin-size" price tag, either. But Netflix figured it out. The company raised its prices, which then helped management land deals with (among others) Disney (NYSE:DIS). Sirius investors will argue that Netflix almost got killed for raising prices.

Though this may be true, I will argue that it wasn't the price increase that angered Netflix' subscribers; it was the execution. Netflix understood this. This is why management offered an apology to its subscribers. But Netflix never offered to revert back to the old pricing did they? No they didn't. Today, the company is posting record revenue numbers on the strength of better content (both licensed and original) and international expansion.

Accordingly, Netflix investors have been rewarded with one of the best performing stocks over the past eight months. Netflix figured out a way to increase the value of its offering. Sirius can't do this without raising prices. The good news is that Sirius has the management team to execute this increase.

What's more, the fact that the company acknowledged the importance of content rights and exclusivity suggests that the company is aware of what separates Sirius from Apple, Pandora and Google. This is the same way Netflix realized what separates its offerings from Amazon's (NASDAQ:AMZN) Prime and Coinstar's (NASDAQ:CSTR) Redbox.

There's also another interesting angle here, though. Do you not suppose that Google's content-sharing agreement with Sirius might possibly help Google better compete with Sirius? I'm just speculating here. But this is something that investors should certainly keep an eye on.

Google is doing its best to keep Apple and Pandora away from that $4 billion U.S. mobile-ad market. If Sirius can help Google do this while helping Google kill off Pandora, investors should see this as a win-win. But don't leave the table just yet, though. Apple still has a hand to play next week. Stay thirsty my friends.

Disclosure: I am long AAPL. 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.