What some people refer to as flip-flopping, others refer to as smart trading and investing. Clearly, I made the right move exiting my long position in Sirius XM (SIRI) at $2.25 back in July. The only way to have made money on this stock since then would have been to (A) short it or (B) run alongside the dead cat bounce from $1.27 to the $1.80s. If you did the latter, I suggest you book profits now.
As for the $10,000 portfolio's position in SIRI March 2012 $3 puts, I'm holding firm. There's no reason not to. While the stock might experience its normal fits and starts along the way, I fully expect things to play out just as I've said all along. Here's part of what I wrote most recently:
I would not be shocked if the company beats some estimates by a smidge. In any case, one of two things happens after earnings.
One, the stock rises post-earnings. It hits a ceiling like it always does and then implodes. Two, the stock stagnates post-earnings and begins a gradual descent back toward and below $1.50. In any case, the question will become when do you short the stock or open a long put position, not if. I cannot answer that now, but I think sometime in the immediate aftermath of earnings, it will be game on.
If the stock drops on earnings, I don't see meaningful support coming in until below $1.50 so there will be time to get on board. The scenario I absolutely do not see playing out is the stock holding any meaningful gains for too long after earnings.
Now it's clear -- no reason exists for this stock to see $2.00 anytime soon, let alone in 2011, so the drop below $1.50 looms.
You can find most of my rationale for this stance in my Seeking Alpha article history on SIRI. But, in summary, there's not much exciting going on with this company, other than quite modest, albeit respectable, earnings growth and less-than-thrilling guidance. And, most importantly, there's no sign whatsoever that Sirius XM intends to do what it needs to do to accelerate growth and actually make the decision to compete against the likes of Apple (AAPL) and Pandora (P) in the broad audio entertainment sector.
While lots of people have attempted to compare Sirius XM with Netflix (NFLX), most of these associations lack. It seems that even Sirius XM CEO Mel Karmazin subtly made the link on his company's Tuesday morning conference call:
When you look at the total number of customers we have, this too is also at an all-time high. While many subscription media companies are losing customers, we have increased our number of customers by 10% over last year to over 15 million, also a record number.
Nice stat, Mel. Excellent spin.
If there's a stock in this universe that I know well, it's NFLX. I saw what was coming with that company from miles (and months) away. And I see something similar happening with Sirius XM before too long. Consider what I wrote last week:
If Sirius XM can learn anything from Netflix, it's that subscriber growth ultimately stalls. Even without Netflix's much-publicized missteps, its domestic sub numbers were about to hit a wall. When you think of consumers making the shift from one delivery mode to another or adding a delivery mode, the move from terrestrial radio to satellite radio has been anything but dynamic. In fact, there really has not been much of a move to speak of ...
It's been clear since shortly after the company entered streaming that there was no real possibility Netflix could have ever secured the number of subscribers necessary to cover its expenses and still turn a profit. Again, even without the price increase and Qwikster missteps, subscriber growth was slowing and about to stall. The same thing will happen at Sirius XM.
The value it offers consumers is, to put it one way, priced into its subscriber numbers. And the company is not doing much to give enough new customers reason to sign on or to hang on to the number of existing customers necessary to keep up the pace it has seen with net additions, which, by the way, dropped between Q2 and Q3. To that end, I would argue that revenue has missed the mark, even if only slightly, for two straight quarters, because, to hang on to would-be cancellations, Sirius XM is offering freebies. I got two months comped. If you subscribe, call and threaten to cancel, you'll save yourself $30 or so.
That's where my comparison, at least, between Netflix and Sirius XM pretty much ends.
Neither company has done anything meaningful to diversify revenues. Netflix would have been better off selling advertising to sit alongside its video streams than to expand with aggression internationally. And we all know that Sirius XM remains a one-trick pony tied in terms of meaningful revenue streams. Simply put, neither company synergizes very well like Amazon.com (AMZN) does or hedges effectively like Disney (DIS) always has.
The reason why Sirius XM will survive, however, and Netflix will not is quite straightforward. Netflix really has no choice but to spend beyond its means on content in what has been a year-or-so-long, last-ditch attempt to drive subscriber growth. It won't be able to play games with its numbers (e.g., reporting "contribution profit") for much longer.
Sirius XM, on the other hand, can speak clearly and transparently about its business model because it's sustainable and legitimate. More importantly, the company has the ability - or at least more leeway than Netflix - to control costs.
Subscribers to Netflix tend to love Netflix, just as Sirius XM subscribers gush over the value the satellite radio service provides to them. Subscriber love, however, does not mean that a company will exist forever, nor does it make it a good investment.
Thankfully for fans of satellite radio, Sirius XM is not going anywhere anytime soon. Current and prospective investors in SIRI, however, should be certain not to make an investment on the basis of this type of passion. If it was not clear already, the Q3 results, management's outlook for 2012 and Sirius XM's ho-hum approach to competition renders its stock little more than a trader's toy and dead money for long-term investors.