Sirius XM: The Company May Continue to Outperform the Stock Awhile Longer

| About: Sirius XM (SIRI)

Warren Buffett once said “when a company does well, the stock price will follow.” After Tuesday’s earnings report, I think investors can agree that Sirius XM (NASDAQ:SIRI) is doing more than “pretty well”. But that has not stopped investors from expressing much frustration over the performance of the stock. Clearly, Sirius remains a buy, and I think investors should distinguish between the company and the stock. I said this once before, but this time it’s for a different reason.

On Tuesday, I applauded the Sirius’ earnings and felt that the company hit it out of the park. I was reminded by several readers that if the numbers were so great than why did the stock plummet? It remains a challenge to continue to maintain perspective, but it is also equally challenging to discount the macro events and not think that it is weighing on the company’s stock performance. Interestingly, Sirius XM (the company) is performing better than Sirius XM (the stock) in these tough economic environments.

Understanding the performance

Not only did Sirius report revenues of $744 million, the company also impressed by reporting a bottom line number of 3 cents per share. Sirius rewarded investors with increased guidance. "With the excellent subscriber performance recorded in the first half of 2011, we are now confident that we will exceed our previously announced 1.4 million net subscriber addition guidance for 2011. Today we are raising our full-year guidance to a projected 1.6 million net subscriber additions," added Karmazin. "After a strong first half, we now expect free cash flow in 2011 will approach $400 million, up from our prior guidance of approaching $350 million."

In 2011, the company continues to expect full-year revenue of approximately $3 billion. Sirius XM's adjusted EBITDA projection remains at approximately $715 million. Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010.

Inside Sirius 2.0

Investors at last received a glimpse of Sirius 2.0 and the next generation of satellite 2.0. I think the mention of 2.0 during the conference call not only created more excitement for investors, but it also introduced more questions. The company shared with investors the following:

  • As part of SiriusXM 2.0, we will be increasing the programming we provide with more channels, and we will do this with less programming expense in 2011 than in 2010.
  • We continue to work hard on our SiriusXM 2.0 product, which will be ready to launch in the retail channel by the end of the year as we previously disclosed.
  • SXM 2.0 is a major upgrade and evolution of our satellite- and internet-delivered networks that span our hardware, software and audio and data content. We are rolling it out in phases, bringing more content and capabilities to our satellite platform, while also employing connectivity technologies such as WiFi, Bluetooth and the Internet to create exciting complements to our core radio services.
  • This upgrade will first be available to subscribers late this year when we make 2 new-generation radios available at retail. These radios will be able to carry more channels than ever before, thanks to expanded bandwidth, and provide functions that help you enjoy satellite radio like never before.

Basically, investors should be pleased with what was shared above. Twenty-five percent more channels will be made available to the new receivers; a great majority of which will the filled with Sirius’ original commercial-free content as well as a significant Hispanic offering; one that continues to set it apart from the rest of the competition. In fact, regarding 2.0 Sirius was quoted as saying:

We will deliver over 50% more the amount of Hispanic formats that are available in Los Angeles, which is the largest Hispanic market in the U.S. and has the most terrestrial Spanish language stations. While some other markets in the U.S. do not even have one terrestrial Spanish language radio station, SiriusXM will clearly be a factor in those markets as well.

Sirius 2.0 will also introduce the “game-changing” experience that investors crave. Several of the more dynamic features will be based upon connectivity online; some of which will offer not only five hours of time-shifting, but also include the ability to pause, replay, as well as on-demand options.


Investors have every right to be frustrated with the stock, but everyone should be excited about Sirius XM the company and how it continues to execute. I continue to maintain that in these tough times, the best way to maintain your sanity is to keep things in perspective. Sirius XM continues to operate on all cylinders and the company is performing well. If you believe in the wisdom of Warren Buffett like I do, than you should believe that the stock will eventually perform well also.

Disclosure: I am long SIRI.