Over the past two weeks Sirius XM has enjoyed a pps move of over 10% to the upside. Investors who are long the stock have enjoyed the move, but from a technical standpoint there are still caution flags in the road. The easiest ones to spot are the low volume and heavy activity on the put side of the options market. These road blocks do not instill confidence in the upward momentum, but somehow the stock has seemed to hold the line as this weeks trading came to a close.
Perhaps some of that confidence was born from Mel Karmazin's speech at the Bank of America Conference. The CEO of Sirius XM spoke with confidence, and painted a bright outlook for the future. The stock responde3d well and has been able to hold the ground, but the question is for how long. Sirius XM is now at the top end of a trading range that has been between $0.90 and $1.10.
A couple of key events over the coming weeks should help the street see if the latest move up is real. We have the contract status of Opie & Anthony, September auto sales, and of course the status of the Howard Stern contract:
Opie & Anthony
The current contract of O & A only has a couple of weeks left. The shock jock duo, along with Jim Norton, have been a staple on the XM side of the satellite radio service and have a passionate fan base. They called Sirius XM's offer "laughable", and have indicated that their show will continue whether on satellite or another medium. In my mind Sirius XM is walking dangerous ground here if they let O&A go. If Opie & Anthony take there show to terrestrial or even a service like Pandora, it is a slap to Satellite radio, and a notch up for whatever service they go to. There has been rumor that Pandora may want to go public this fall. If they raise enough money, bringing in a talent like O&A, which has a core group of fans, could be enough to put the Internet Radio service company on the map with live content. Whatever happens with O & A the news will spread quickly.
September Auto Sales
The key that we will all be looking for is sales that come in near or above the magic 1 million number. If the auto sector can sell 1 million cars in September, there will be a virtual certainty that Sirius XM can report good metrics across the board. With July and August setting the quarterly bar at 1 million, investors can clearly see a third quarter that will rival the second. In Q2 the company posted strong results. Mel has stated several times that with auto sales at around 12 million per year that the business model looks great. A second consecutive quarter of great results will demonstrate more definitively that Mel is speaking about real performance, not just blowing smoke.
Some speculate that a deal in principle is already in place. I highly doubt this. Stern is not the type to give up negotiating power and to hold off for "the right moment" for the company. He will utilize every advantage he can, and a deal in principle does not benefit Stern. The company has said they anticipate an announcement on the Stern Show sometime prior to their Q3 call (first week of November). The subject will come up when the O&A deal is announced, and depending on what happens with that contract, the speculation could reach a fever pitch. If Stern leaves, it will be a hit to Sirius XM at least in perception. Should Stern move to an Internet platform, it would mean trouble and the emergence of a competitor that until now many have refused to accept as a rival.
the simple facts are that services like Pandora will continue to grow. people have been saying forever that they would die. They have been saying that the royalty rates are too high. They have been ignoring the viral marketing and acceptance these types of services have. If Internet radio can land a couple of high profile live shows, they can generate revenue and HELP their own business model.
Watch for Sirius XM to be a mixed bag until these issues are resolved and they report their Q3 numbers. The light volume we currently see would give me pause on saying that things are bullish right now. The potential is there, but there are reasons some are still skeptical.