Despite the cat calls from Sirius XM (SIRI) permabulls, it's quite clear what the score is as well as who knows it.
Because I know the score, the @LIVESTRONG Foundation will be $5 richer. Because I hate cancer and recently lost a loved one to the damn disease, I picked Livestrong as my charity in a little wager with Twitter friend, @damevents, over SIRI's Tuesday morning earnings release.
I like @damevents because, even though he is a SIRI bull, he knows how to have fun and he does not misunderstand, misconstrue or discount what I do. And, after the latest SIRI post-"good" news swoon, all other SIRI bulls should stop misunderstanding, misconstruing and discounting.
@damevents and I hinged our bet on three data points: Revenue, total subscribers and share price at the end of the day.
|Data Point||My Prediction||Actual|
|Revenue||$801.5 Million||$804.7 Million|
|Closing Price||$2.04||est. $2.22-24|
For all the doubters, here's a date-stamped screenshot from Twitter with proof:
I'm a bit off on the share price, but just give it time. It will get there sooner rather than later.
You have to give Mel Karmazin and Sirius XM credit for being consistent. Even some guy who spends his day in a Toronto Maple Leafs hat just a few blocks from the Pacific Ocean shrouded in fog can nail what this company and stock will do better than the most ardent bulls.
Outside of almost hitting the subscribing number dead on, I am not sure I could have assessed what we would see on earnings any better. Consider what I wrote last month on Seeking Alpha:
With or without the takeover distraction, I expect more of the same from Sirius XM on the report and from Karmazin on the call. He'll do what he does best - speak it like a true CFO. Yes, I said CFO. He will yowl about free cash flow and other metrics that, at day's end, investors could not care less about. Even though they're very different types of CEOs, Karmazin and Hastings find themselves in similar situations.
While hyper-growth is fading at Netflix, revenue has never really increased by impressive percentages, relative to other new media peers, at Sirius XM. Without hyper-revenue growth or a clear path to produce some, you effectively weigh down your company's stock when you run in a space where the competition routinely posts high double-digit and even triple-digit revenue growth.
All the share buybacks in the world will do very little to offset the impact of a slow-growth, AM Radio culture and billions of outstanding shares. Just ask Netflix what an ill-advised buyback accomplishes.
In any event, I am not expecting anything forward-looking - or exciting - that investors will be able to sink their teeth into on Sirius XM's next call.
And we received more of the same. The only thing that even piqued my interest a little bit was revenue jumping by just over 11%, year-over-year. I have little reason to believe, however, that it can skip to a much higher rate, let alone sustain double-digits.
Check out Karmazin and CFO David Frear on the company's conference call. They could literally use the same template for the call every quarter, just plugging in new numbers. Nothing changes.
We learn that free cash flow increased, subscriber growth looks good and Sirius XM has great content that makes its customers happy in an uncertain economy that, ironically, sports solid auto sales. And then Mel tells us that he will make the service even better for subscribers by adding features such as personalization. Yawn.
How exactly is that different from what we have heard on the last year's worth of conference calls? It's not. And, worse yet, it's not even all that exciting. We're going to leverage the smartphone platform, but we have no way to monetize it. And we're going to steal from Pandora (P), the company with an apparently inferior business model.
I am convinced that the most ardent SIRI longs hate themselves. They will not recognize the reality of the market and sectors Sirius XM runs in until SIRI is a penny stock again.
Investors do not want the CEO to sound like the CFO. They do not want to hear that you're pouring your free cash flow into share buybacks and initiatives that will do little more than help teach your core audience of 65-year olds how to (hopefully) use a smartphone.
If you own the stock and have generated profits, take them if you have not already. If you're sitting on a loss, cut them and move on. No amount of cheerleading, finger-pointing or conspiracy-theorizing is going to make this dead money move in the right direction. It's all up to the CEO or, best case scenario, Liberty Media (LMCA), if it can ever manage to oust Karmazin and seize control.
Disclosure: I am long P.
Additional disclosure: I may open a long position in LMCA this month. I may open a short position via long puts in SIRI this month.