Sirius XM (NASDAQ:SIRI) will report Q4 and full-year numbers before the bell on Thursday. As someone who has been invested in Sirius XM for a long time, it feels as if this report has a great deal of anticipation surrounding it.
Watching Sirius XM trade for the better part of an entire year between $3 and 3.60 per share, I have seen so many investors get essentially bored out of the stock. Most find made up reasons to sell simply because the share price is not where they would expect it to be. For some reason, what looked good at $4.18 suddenly looks bad at $3 despite the underlying company performing better than expected the entire time. For some reason, what was a good investment and held promise at $4.18 suddenly 'will never get back to those prices again' because, well, 'because it won't.'
But, did the company really change from October of 2013 and that $4.18 high? Not really. Yes, there were events that have transpired since then. A large automaker shifted terms of a contract which shifted the lead/lag time on subscriber numbers. Majority owner Liberty Media (LMCA) made an equity swap offer for the company which was arguably ill-received, and then retracted it. Sirius XM's last (and in my opinion most) toxic debt was finally retired in December, converting the underlying shares and erasing the underlying debt.
But were these bad things, or simply confusing things? Did these things hurt the company? Not really. Did these things offer short-term confusion and turbulence? Yes. Did the share price suffer because of some of them? In my opinion, yes.
Not to insult some of the audience, but many investors tend to be simpleminded in approach. Stock went down? News must be bad. Never mind what we should understand as investors, that yes the subscriber numbers looked bad but no they were not. The contract shift is a long-term positive. The Liberty offer? Was it a bad thing? Not particularly other than the costs involved with its consideration. Conversion of the bonds? Did it really issue more shares or was it merely the inevitable eventually happening? Is it not counteracted on the positive side with removal of the high interest debt?
Are all of these "bad" things or was the reaction simply bad and the news either neutral or good?
And what of the buyback? Do lower prices during the buyback period not allow the company to buy back more shares for less money?
In the absence of much of the above, though, when one looks at the company itself, has Sirius XM been performing poorly? Not really. While the company may have guided low at the beginning of 2014, this had become commonplace and should be expected. There really are no surprises there. I think most expected those numbers to be beaten, including the raised targets issued later in the year. Similarly low guidance for 2015 should be approached in the same fashion.
I think the key that investors should focus on here is that 2014 beat, at least on number of new subscribers, to an extent which I believe was unexpected. 1.75 million vs. 1.25 million guided is a 40% beat. That's significant. The share price since the announcement has marched higher on increased volume and that brick wall of resistance in the $3.60s has been tested three times now in a very short time frame. It appears that reaction has been favorable to this preliminary data and that does bode well for the release of other metrics in the Q4 call.
As Jim Meyer stated in the link above:
Sirius XM performed very well in 2014, exceeding our 2014 subscriber and financial guidance, even after pushing most of these targets higher during the year.
More "beats" are on the way as it was stated that the company exceeded its financial guidance as well as the already released subscriber numbers.
I think there is a good possibility that this report may have few, if any, negatives for the headlines to focus on. The only wildcard is the conversion of the convertible bonds. Do the writers get it correct and understand that the resulting new shares are offset by a reduction in debt, and that these shares have been "out there" underlying the bonds since they were issued years prior? Or do the writers get it wrong, and claim that the buyback is ineffective because in their mind, the company is simply printing more shares?
People are unpredictable. Headlines, written by people, are similarly unpredictable. As an investor, I'm optimistic heading into the call tomorrow and I continue to like what I see from the company. I think 2014 offered considerable opportunity for investors to add to positions at values which are historically low for Sirius XM. The stock, in my mind, has much more upside potential on what should be good news, than downside risk.
