Sirius XM (SIRI) continued to amaze investors as it rose to a new 52 week high of $2.51 Wednesday. As a matter of fact, that is the highest the stock has been since 2008. This caught many shorts off guard, since the normal pattern with Sirius is to buy the stock right up to earnings, and then sell during the conference call. I have personally seen this happen a number of times. But even though the share price did start falling during the call, this time was different.
There have been several things that have caused the stock to jump from a low of $2.01 less than a month ago on July 13, to these new record highs. And new things keep happening so fast that it can make one dizzy! If an investor had bought at the low last month and sold yesterday at $2.51, he/she would have made a 25% profit in just over three weeks:
|Aug 8, 2012||2.29||2.51||2.28||$2.48||323,525.788||2.48|
|Aug 7, 2012||2.25||2.34||2.22||2.30||191,370,900||2.30|
|Aug 6, 2012||2.17||2.23||2.17||2.20||67,401,800||2.20|
|Aug 3, 2012||2.13||2.17||2.12||2.16||31,099,800||2.16|
|Aug 2, 2012||2.14||2.16||2.10||2.11||31,450,400||2.11|
|Aug 1, 2012||2.18||2.18||2.09||2.15||34,290,600||2.15|
|Jul 31, 2012||2.19||2.20||2.14||2.16||25,566,500||2.16|
|Jul 30, 2012||2.18||2.20||2.15||2.19||32,212,700||2.19|
|Jul 27, 2012||2.12||2.17||2.10||2.16||68,744,900||2.16|
|Jul 26, 2012||2.11||2.13||2.08||2.11||51,842,200||2.11|
|Jul 25, 2012||2.05||2.11||2.04||2.08||42,978,800||2.08|
|Jul 24, 2012||2.07||2.08||2.03||2.04||17,295,300||2.04|
|Jul 23, 2012||2.07||2.10||2.06||2.08||21,794,500||2.08|
|Jul 20, 2012||2.12||2.13||2.08||2.10||44,160,400||2.10|
|Jul 19, 2012||2.12||2.16||2.10||2.11||46,912,000||2.11|
|Jul 18, 2012||2.08||2.13||2.07||2.11||37,493,900||2.11|
|Jul 17, 2012||2.08||2.10||2.02||2.09||49,838,900||2.09|
|Jul 16, 2012||2.04||2.08||2.04||2.07||30,744,700||2.07|
|Jul 13, 2012||2.06||2.10||2.01||2.05||45,088,100||2.05|
For those of you that missed it, here is a brief re-cap. One of the first things to happen was the announcement that the net subs added for Q2 were up 38% over last year. This led to new sub guidance of 1.6 million for 2012. However many analysts realized that even that number was low, since the company is already up to a million subs for the first two quarters of the year. The possibility of 2 million new subs for 2012 suddenly seemed very possible. Obviously since subs are the main source of revenue for Sirius, analysts began to raise the target prices for the stock. Then near the end of July, which many investors consider a "soft" month for car sales, news began to leak out that July might end up being the best month for new cars since 2007. And if that happened, July would also be another great month for Sirius XM subs. This news combined with a great earnings announcement on August 7 could trigger a "Super Short Squeeze", considering that there were around 300 million shares sold short.
And as most of you now know, that happened. But CEO Mel Karmazin did not stop there. Not only did he recognize over three billion dollars worth of NOLS, which sent the earnings to 48 cents a share, he also formally announced the launch of "On Demand", the second step in the company's future goal of "Personalized Radio":
Recent Shows: Access to more than 200 shows from exclusive talk and entertainment, commercial-free music, comedy, and sports.
Selections from The Vaults: For the first time, SiriusXM is curating and making selections from its vast audio archives-spanning many years of exclusive shows, specials and series-accessible to listeners.
Updated content: SiriusXM's On Demand offerings will be updated daily with great selections from its audio entertainment catalog, and the available catalog will be expanded on a regular basis.
Featured Content: Regularly updated "Featured" section allows subscribers to discover more content, including timely interviews, brand new shows, "pop-up" channels, and seasonal series.
Easy Navigation: Using a mouse or finger, listeners can scan what's playing or easily find a specific point on many shows.
SiriusXM listeners will have On Demand access to over 2,000 hours of SiriusXM content, including more than 200 shows from sports, comedy, exclusive talk and entertainment, and commercial-free music from many genres such as The Howard Stern Show, Bob Dylan's Theme Time Radio Hour, Tom Petty's Buried Treasure, select Jimmy Buffett concerts, The Opie & Anthony Show, The Jamie Foxx Show, Ask Martha featuring Martha Stewart, Dr. Laura, The Bob Edwards Show, Mad Dog Unleashed featuring Christopher "Mad Dog" Russo, Ripken Baseball, Rotten Tomatoes Radio and many more.
Last Friday night the 2.2.0 On Demand App became available on Apple (AAPL) products, with lots of rave reviews. Basically there is a "library" of past shows that users can pick from. The beauty of this is that you can pick up your favorite shows that were missed because they had been broadcast simultaneously, or when you were not able to listen to the radio. Honestly I think Mel was brilliant announcing this on the conference call, but I also think the exceptional earnings overshadowed the importance of this new gem that they have created.
Then Wednesday, after already announcing the company would be paying down a significant amount of debt, Sirius announced that it intends to offer $400 million of Senior Notes due 2022 to institutional buyers, which will give the already cash rich company even more leverage:
NEW YORK, Aug. 8, 2012 /PRNewswire/ -- SIRIUS XM Radio intends to offer $400 million of Senior Notes due 2022 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and outside the United States in compliance with Regulation S of the Securities Act.
SIRIUS XM intends to use the net proceeds from any such offering for general corporate purposes, which may include, from time to time and as market conditions warrant, the repurchase, redemption, defeasance, tender or repayment of our outstanding indebtedness, including our 13% Senior Notes due 2013. Pending application of these amounts as provided above, we currently expect to maintain any excess amount as cash on hand.
But by far, in my opinion, the catalyst for yesterday's rally was the big announcement by Liberty Media (LMCA) that it will spin off its Starz premium-cable channel to raise cash for the purchase of Sirius XM. According to the Wall Street Journal this morning:
John Malone and Liberty Media are mobilizing cash for the takeover attempt of the rest of Sirius XM Radio. The media giant is spinning out its Starz premium-cable channel as way to bring in cash for its satellite radio hopes.
Liberty's CEO Greg Maffei says the move will "permit us to better pursue our strategic objectives, including creating two currencies that could be used for acquisitions; and create significant liquidity at Liberty Media, which preserves all our options with respect to SiriusXM and Live Nation."
This story sends a message to investors that Liberty may be losing confidence in their FCC application for de facto control of Sirius. Is the company accepting the fact that it will have to either pay a premium to Sirius shareholders or buy enough shares on the open market to reach 51% ownership. Wednesday the stock was sitting comfortably between $2.48 and $2.50 after another big announcement that Moodys had upgraded Sirius. With huge volume Tuesday and Wednesday totaling over half a billion shares, this looks like it could be the new normal. And I would not be surprised at all to see an SEC filing that Liberty is buying Sirius stock on the open market, or that there is a third party agreement.
I have gotten a lot of questions from readers as to what to do with their stock in the last two days. If I had the right answer, I would be writing this from my private island. My first impression on Tuesday was that investors would start to pull out at $2.35. They actually began to sell at $2.34, and the shares fell back to $2.28. Then yesterday when it hit $2.50, I expected more profit taking. There was some, but there were an equal number of buyers to keep the price above $2.40. So I would advise those that need the money in the near future to sell. However, if you are in it for the long term, hold for the buybacks. The price should be well over $3 by the end of the year.
Disclosure: I am long SIRI.