A lot has happened this week in satellite radio. Sirius XM Radio announced subscriber metrics early and the results were quite impressive. The company added over 583,000 subscribers on gross additions of just over 2,000,000. This happened on better churn, but does come at a cost in the short term. The news is very good though. It is through new subscribers that growth happens, and while that growth carries expense near term, it brings in revenue in the longer term. In essence, with the release of these numbers, we have yet another indication that Sirius XM is on track to being a profitable company. Yes, it will still take time, and the company may not show a profit in Q2, but the trend of the metrics are going in the right direction.
Technical analysis does rely on good company fundamentals, but does so based on what is happening in the overall market more-so than the fundamentals themselves. Technical analysis takes into account the market reaction to fundamental issues among other things.
With exponential moving averages, we are once again at a convergence point. The last convergence point seemed to start a move up, but that fizzled, and the equity dropped. With the company due to report in the next three weeks or so, there will likely be a lot of sideways trading as people jockey for position on the trading range between $0.90 and $1.10. This does not mean technical analysis is moot, but rather a reflection of people waiting to see all of the numbers. In my mind the technical indicators people want to focus on until the Q2 call is the support and resistance levels and volume. Support and resistance tells you where the the lines in the sand are drawn.
Before laying out the support and resistance levels, I will give some opinion on the pending quarterly call so that investors are not taken by surprise. I have oft stated that 1,000,000 in the OEM channel is the magic number for Sirius XM to be able to report across the board positives on the metrics. We saw the 1,000,000 per month in Q2, and now we will begin to see how that impacts Sirius XM. Yes, the costs will be higher due to more gross additions, but this is how the company will grow. If the OEM pace can continue we should be in great shape going forward.
The key to the Q2 report is not in the bottom line. That's correct, it is not in the bottom line. In fact, there is a good chance that the company will report a loss for the quarter. The key is whether or not the company presents the quarter in a way that demonstrates the growth they are having. Look for their churn of 1.8% this quarter vs. 2% last quarter to be a key point. The churned out less subscribers this quarter from a larger subscriber base than they did last quarter. The percentage improved, but the more impressive fact is that less subscribers on an absolute basis defected. It is points such as this that Sirius XM needs to focus on.
The risk here is that a loss is very likely to be reported and the media may run with that headline. That will hit the stock price. By reading SiriusBuzz, you have some warning to this happening. However, the vast majority of investors do not read satellite radio web sites, so they will not know this, and will likely follow the sentiment outlined in a mainstream media headline.
The positives outlined by the company will be lower churn, a higher OEM take rate, record level OEM installations, record gross additions, stable ARPU, stable SAC, as well as higher and higher revenue numbers. The pitfalls are that EBITDA will show a decrease, and short term costs will be high. The performance of SIRI stock relative to the quarterly report will rest more on mainstream media headlines than the actual positive outlook the numbers present. Sirius XM needs to spell all of this out in the PRESS RELEASE issued early in the morning as well as in the CALL. Even if they spell it out with ultra simplicity, they will not be able to conrol what the headlines read.
The next interesting thing investors should watch for is what happens in the analyst community. With the big boost in subscribers, you can bet that Sirius XM is fielding a lot of calls from analysts to discuss their models. These analysts, for the most part, will see that there is some real positives in what the company is reporting, and the direction the company is headed. It is possible some can issue reports leading into the call, but we may have to wait until after the call to see the analysts issue new reports.
With all of that being said, the support and resistance levels stand at the following:
Resist. - $1.23 weak
Resist. - $1.14 weak
Resist. - $1.10 moderate
Resist. - $1.01 very strong
Suppt. - $0.95 weak
Suppt. - $0.92 moderate
Suppt. - $0.89 moderately weak
Suppt. - $0.84 strong
Suppt. - $0.82 weak
As you can see Sirius XM currently sits just below very strong resistance at $1.01 and weak support at $0.95. This is a precarious position for Sirius XM, and will present a constant battleground. Short Interest is extremely high, and that factor needs to be taken into consideration. The short side is looking for the equity to get into the $0.80's, and the long side wants to get to $1.25. This fight has been ongoing for some time, and while many thought that the Russell inclusion would solve that situation, it has not. It will take a few quarters of positives such as those we will see in Q2 to turn the tide. What investors want to focus on is the volume. Moves on heavy volume build support, or make resistance stronger.
It will be an interesting couple of weeks.
Position - Long Sirius XM Radio