Managing Expectations On Sirius XM

| About: Sirius XM (SIRI)

Each quarter I take considerable time to try to project what Sirius XM (NASDAQ:SIRI) will report in its quarterly earnings. It is a tedious task filled with estimates, assumptions, guesswork, and the review of historical performance. Needless to say, it is not very much fun. In doing this, however, I have found that it grounds me in many ways. As each quarter progresses, I see where things are trending with my models for the company. It gets me to think long before any company announcement what I would consider bad, good, or great.

As with many investors, I have some preconceived thoughts about where the quarter will be based on the experiences in the months prior. However, it is not until I build a model that I see where I have been too pessimistic or too optimistic. For this reason, I encourage investors to take the time to really run through the calculations.

I have released my Sirius XM estimates for the current quarter, and you can see from those estimates that I expect the company to announce a decent quarter with positives in many areas. I also expect that the company will revise its subscriber guidance for the year. My targets for the current quarter:

  • Subscribers at 416,000
  • Revenue of $809 million
  • ARPU of $11.69
  • SAC of $57
  • Churn of 2.0%
  • Free Cash Flow of $165 million
  • Adjusted EBITDA of $215 million
  • EPS of $0.02

Taken at face value, this would all seem good. In my opinion, this will indeed be a good quarter, but nothing that will set the world on fire. Take one look at my email inbox and on a handful of message boards, though, and you will see that expectations for Sirius XM are sky high for some.

Recently, a critic of mine went on a short tirade, telling me I have no reason to be bearish and that the company is going to do "amazing." This critic rarely gets into actual numbers, but instead uses words that lack any real meaning. Now that I have offered up my numbers, I will probably hear some sort of response that is based not on what that person thought of as "amazing," but rather on defending their assumptions against what I have published. Unfortunately for that person, they are selling themselves short.

That correspondence got me to thinking. Many investors, myself included, have a tendency to speak in generalities about our investments. By overgeneralizing we are able to build in excuses if the numbers do not quite meet up to something. Unless we have the courage to put our goals and targets in writing, we can build in an excuse as to why the company reported this number or that number and thereby justify our original purchase of the equity. We all want to do well with our investments and want to believe that we make sound decisions all of the time. We use generalities to build in a cushion for ourselves. However, this is money we are talking about, so we should all become a bit more critical.

Thus, before Sirius XM announces its numbers next week investors should take some time to put down on paper what they consider poor, good, and amazing. If the company is not performing up to good expectations, then the next question is why. If there isn't a good reason as to why, then you have to use your head, adjust your expectations, or find something else that will deliver the performance you want. Companies miss my expectations all of the time. There is nothing wrong with that. Where we do ourselves a disservice is when we become the excuse machine for an investment.

Investors, the challenge is up to you. Are you courageous enough to put your goals in writing?

Disclosure: I am long SIRI.