Sirius XM Posts Q3 Results
After weeks of upward momentum Sirius XM finally released their Q3 2010 numbers today. The company reported good metrics across the board, but in the end,and to the frustration of many investors, the stock closed down for the day. Looking at the numbers many may wonder what went wrong to cause an erosion in share price to an intraday low of the low $1.40’s. The answer is Actually quite simple. The quarter was good but not great.
Now I know there will be scores of people out there saying this was the best Q3 in quite some time. and that is very true. However, the company is being measured differently today, and in comparison to Q2 of this year SIRI held the line in many metrics while showing a modest improvement or modest setback in others. To be clear, holding the line in Q3 is a big step, as Q3 is among the weakest quarters for the company. What was likely tempered is some of the big gains that some were anticipating.
The numbers all played out pretty well. The biggest factor going forward is not what happened in Q3, but instead where SIRI set their guidance for 2010. In many ways the guidance seems anemic compared to what we have seen this year. Will Q4 only deliver $120 million in adjusted EBITDA coming off of a Q3 that carried $169 million? Are there really only a couple of hundred thousand subs left this year? Will Q4 revenue simply match Q3? These are the questions people have. These are the items that give some people pause in their excitement.
That being said, what these people are missing is the real story of Sirius XM. What is happening with the company is VERY healthy. Modest gains in metrics each quarter allows the company to grow at a rate that can be managed. The key here is that with hundreds of millions in revenues, modest gains in metrics represent substantial sums of money. Sirius XM can grow a methodical step at a time. The story here is that SIRI clearly demonstrated in Q3 that they are for real in terms of financial metrics. Their guidance, which I feel is conservative, shows more gains to come. As this company matures, gets debt even more manageable, and adjusted their business model, they can turn these little steps into much bigger ones.
During the call Sirius XM CEO Mel Karmazin discussed and added more flavor to Satellite Radio 2.0. As I anticipated, it is more than just technology. It is about technology, content, and additional services. Satellite Radio 2.0 promises to deliver a 25% efficiency on band width. That is huge! Think of it as another 40 channels worth of content. With it only being available on newer hardware, it gives the company yet another tier of programming from which consumers may pay even more money for. This means more hardware sales at the retail level and a renewed energy among existing users. This aspect alone could be huge going through the end of 2011 and the beginning of 2012. The concept also promise more Latino programming, which Karmazin noted was under-served with the current satellite radio line-up.
The bottom line is that while investors may be a bit disappointed with the price action in the stock, the longer term looks much brighter, and carries a lot more potential. Look for analysts to begin raising targets. The performance in this Q3 should be proof enough that valuation is fair, and there is plenty of potential yet to come. In my opinion we will see targets creeping toward $2.00 a share and up in the coming weeks.
Position – Long Sirius XM Radio
I responded on Facebook, but it doesn”t show here. Do you respond over there ?
Couple of interesting things are coming…price increase is possible mid 2011…that goes directly to the bottom line…Does Malone buy the rest?…we should know in the next 18 months…Mels options have reached 100 million in the black…wow.
Tyler, first of all, how many times have we seen great metrics and then a bad outlook and what happens the PPS gets wacked (that happens with every stock). That is not happening here they gave good metrics and a even better outlook. On top of that who was it that had said, they just need to show 3 or 4 good quarters before people start to realize SIRIXM is for real and the PPS will go up. I just think this is more of the same as what has happen for as long as I can remember, buy the rumor sell the news. Lets face it this has happen to SIRIXM alsmost everytime from the .07 days. Then a little while later the PPS starts its way up. Now I see it has went up today and almost back to what it was before the CC, now if this trend continues I beleive we will see the PPS move up sooner then before. That does not mean that this PPS will hold and it may go down again because usually it is about a month and a half before it starts its way up. So even if it does go down from what it is right now to even something like 1.25 or 1.15, lets face it, that would be normal but would be the first time it stayed above the dollar mark inbetween quarterly reports.
Thursday the price held steady and even ticked up a bit in the early morning. I thought, finally the numbers come out and this stock holds up, but as usual, the stock tanked. Im glad to see it moving back up today.
I was also surprised to see that jackass at The Street.com – Marek Fuchs finally admit he was wrong.
Well if Howard Stern signs another contract for 5 years for less then 500M this would start another surge in the stock price strong enough momentum to take up pass the $2 mark. I personally do not think SIRI will go below $1.24 again.
IMHO, the stock came down only because of no HS news. And this is not surprising because practically all events related to siri have been treated so far on “hype” basis versus real fundamentals and phenomenbal potential. We are witnessing a transitional period that might last throughout 2011 unless some very major things happen before the end of 2011 like price increase in mid-2011 or very large subscriber additions or retail market growth or selling siri service in South America, or significant after market penetration Mel was talking about during CC or something else substantial that would add to the bottom line. Mel’s objective, based on my understanding of the CC, is to keep growing while maintaining SAC and increasing ARPU. There are a lot of events from positive HS announcement to the above and others that could move the stock substantially. If you are long, all you need is patience. They are still a virtual monopoly and it would be stupid to argue this. If you add good management on top of that, you end up with a great company, which is the case. The only thing that could harm them temporarily is HS leaving siri. On the other hand, what kind of company would it be if it depended only on one person!!!. They are a radio giant, which no one should doubt, and they will live up to the name without HS just as well.
Good Management????
Are you out of your mind???????????
1. Programming: Basically terra radio without commercials (for now anyway)Piss poor since the merger
2. Customer service/subscriber input: Basically doesn’t exist as pointed out by Mr. Spencer Osborne himself in an article a month or two ago.
The “virtual monopoly” you reference is why they have become so piss-poor. The FCC charter was for two satellite entities. You buddy Mel hoodwinked an impotent FCC and now we see the result.
Higher subscription rates,short/repetitive playlists,announcers who aren’t fit to be on local radio,same comedy bits played ad-infinitum. That’s just a few glaring examples of your so called “good management”
SiriusFM (oops – I ment SiriusXM – my bad) has become a company under Mel’s guidance that pays no attention to its subscribers but is only interested in “smoke & mirrors” so stock traders can make a few more bucks when the stock goes up a penny or two. They don’t care about the quality of a product or service but only if it looks good in the short run.
I cannot think of one merger that resulted in better quality, more competition = lower prices or increased customer satisfaction for the consumer.
There, I said it…………. and challenge anyone to prove me wrong.
Lets take a step back and take a deeper look at the charts for second….. SIRI was at .95 for God sake, any healthy stock that surges with this much percentage will have to consolidate at some point ….NOW, you got the Weather Man (Mathew Harrigan) price target of $1.75 S&P at $2
and most important CNBC Clown finally upping his price to $1.25 Gotta give him credibility though for not forecasting before the CC. That would have been a disastrous.
Don’t forget all the catalysts still at play before EOY ….Nasdaq 100 / Convertible bonds coming in to play /NFL / and a whole new institutional interest on the way!!!!!!
IMHO, If HS re-sign (walks away) Thats when Mel will give his guidance for the full year.
in another word putting out the fire or at least part of it.
Nothing goes up in a straight line. Just sit back and watch Sirius do its little bump and grind action while it keeps going up. With car sales doing extremely well and Sirius refinancing that previous high rent debt there is no way to go but up. The wild card is that Sirius is an excellent buyout candidate. It’s the ONLY satellite radio company in North America. Another plum is that all of those losses being carried forward by Sirius from past years could be used by the buying company to offset its current profit. Will Sirius be bought out? It’s not a matter of if, but rather when and by who. Mel says that it won’t be cheap and investors will do extremely well. BTW, when the buyout intent is announced look for a bidding war the likes of a feeding frenzy.
I wonder when Mel said during the conference call that Howard has been a great partner, if there was any resignation in his statement almost preparing investors that it may not happen. They have been adding a lot of content including the Spice channel, maybe to bolster offerings.
No mention was made about the launch costs of XM5.
David Fear said they could be in Q 3 or 4. I printed off the report but haven’t had time to really go through it.
Anybody up to date on this?
All XM5 launch costs had been paid except the launch insurance. It is not clear if they paid it in September or October (I believe lauch was on October the 14th). Still, the amount is not that big and should be between $10 and $20M.
vl, thanks for your reply.
One other thing I forgot. On the Stern negotiations, no one is taking into consideration the status of the Bush tax cuts.
If I’m Stern’s agent, I would want to know if there is going be an up or down on this before closing a deal.