Sirius XM has a lot of passionate fans of the service and a lot of passionate investors. One common theme among many investors is that Sirius XM is a heavily manipulated stock. WAKE UP PEOPLE! Why is it that I hear everyone scream manipulation when the the stock goes down, but never hear it talked about when the equity goes up? Why is it that people scream manipulation when a firm writes something negative about Sirius XM, but never when a pumping overly positive article is published? Why is it that today Sirius XM announced wonderful news about subscribers, but investors fail to consider the other side of the coin…THE COST TO GAIN THOSE SUBSCRIBERS?
The fact of the matter is that manipulation on a smaller scale happens on all equities. Companies put out positive information all of the time in press releases. Every company out there also has critics that will be negative. Many Sirius XM investors seem to think that there is some wide ranging conspiracy against Sirius XM to take down the company. The fact of the matter is that Sirius XM is a popular stock with high liquidity. Do investors actually think that the announcement of 583,000 subscribers should boost the stock by 20% or more? The news is positive, but adding $1 billion to the market cap because subs are up by 500,000 seems like a bit of a stretch….or better yet a massive stretch. If these 500,000 subs are worth a billion, why isn’t the company valued at $38 billion for the 19 million that already exist? The problem here is not the everyday “manipulation” tug-of-war…It is overzealous investors who don’t stop to think about things more deeply. They get over excited on positive news and positive articles only to be disappointed time and time again. They seek someone to blame, and cry foul due to “manipulation”! If you feel that SIRI or the market manipulation is so bad, get out of the equity and get out of the market.
We all saw the good news released by Sirius XM today. It was indeed good news and should be celebrated. How many of you that cry manipulation considered the other news that was released today? The company added about 2,014,982 gross subscribers in the quarter. Last quarter the company added 1,720,848 gross subscribers. With a subscriber acquisition cost of $60, those 300,000 additional subscribers come at a cost of nearly $20,000,000. This cost will carry a negative impact on EBITDA. Last quarter EBITDA was $158,000,000. Don’t look for Sirius XM to match that this quarter. The company warned that SAC would increase last quarter, but it seems that most simply choose to ignore this fact. Smart investors embrace today’s news for the positive it represented, yet were tempered that news enough to realize that growth costs money. Notice that Sirius XM did not increase EBITDA guidance today despite the fact that subscriber growth was increased. Subscriber growth is good in the longer term, but it presents present day costs that must also be considered.
People see the boost in subs and guidance as a reason analysts should boost short term price targets. People feel upgrades are deserved because the company reported a subscriber number that blew away what analysts were expecting. HINT FOLKS….Those subscribers cost money and analysts are basing their models not on subscriber growth, but instead the balance sheet. Current EBITDA guidance remains at $550,000,000 for 2010. Q1 delivered about $158,000,000. That leaves $392,000,000 for the balance of the year, or about $130,000,000 per quarter. The company can top that number, but their caution in raising guidance hinges on the OEM channel. Think of it this way. Each gross addition costs $60. Adding subs is great, but it is great for the future, not the present. Thus, why should the stock jump up in a huge way on this news? The move up was likely what it should have been. In the end I would rather see a slow and steady move up than the roller coaster of emotion that many SIRI investors seem to be on and love to complain about.
Rather than looking for the latest conspiracy investors should focus more on the metrics and getting deeper into them. If the company is hitting on all cylinders there is less of a tug-of-war that can happen. Stop looking for “signal trades” on level two and break out a calculator to crunch real numbers. Stop blaming The Street.com for the negative piece and look at how Sirius XM is when compared to the overall markets. If you stop and look at this you will see there is no massive conspiracy involving Jim Cramer, Motley Fool, CNBC, MSNBC, SIRI analysts, auto analysts and some clearing house in Cincinnati.
Yes, the markets are manipulated some scale. People talk up stocks and people talk down stocks. It happens every day to every equity. I fully understand that there are cases that the manipulation goes beyond the norm. There are plenty of famous example of this happening. Yes, I understand that naked shorts are a problem. Yes, I understand that the average retail investor is at a disadvantage. I get all of this, and believe corrections need to be made. What I do not understand is the number of people invested into SIRI that toss around the manipulation word every day, and stayt in the market.
SIRI was up 6% today on good subscriber news. Why anyone would expect a move more than 10% is beyond me. Especially so quickly after considering the modest move the equity made on the Russell reconstitution. I have said for a long time that this equity has people on both sides than can point out reasonable arguments to go long or short.
I am sure that this article will frustrate some. It is my hope that it gets more people to think a little deeper and stop looking for someone to blame. Enthusiasm is good, but it needs to be grounded with good solid thinking, not following some mystical signal trade on level 2 or an article published that sees the other side of an argument.
Position – Long Sirius XM