Satellite Radio Playground

by Dennis “Cos” Costa

After Sirius XM Radio’s (NASDAQ:SIRI) stock price touched a new one year high of $1.20 per share at the close of Monday with a sudden surge in volume, hardcore and new-to-the-equity investors alike awaited with great anticipation as Tuesday’s trading began. With Goldman Sachs Senate hearings taking over the media outlets during the day, and the markets taking their worst percentage losses in two months, reacting to downgrades to the sovereign debt of Greece and Portugal, Sirius XM Radio’s stock held firm to close at $1.14 per share, completing it’s 10 day run as had been predicted by this reporter, on decent volume of 122 million shares.

It was clear that the lead in to this run for compliance with the NASDAQ’s market bid price rule, with record volume trading days, was the determining factor that built the wall of support necessary for this successful outcome. Almost immediately after the close of Tuesday’s trading session, the company followed with two press releases after the bell that they not only met all NASDAQ Global Select Market standards for listing and the scheduled Appeals Hearing was canceled, but that they are removing the need for any further consideration of a reverse stock split. In one day, the company on flat trading and a bit below average trading volume, removed more uncertainty from an investor’s risk equation than in any other time in its recent past. Retail and Institutional investors alike are now able to purchase this equity, without any of this uncertainty. I would expect to see sidelined investors moving into the equity over the next couple of trading days, putting buying pressure on the price ahead of the Q1 conference call, scheduled for Tuesday May 4, 2010 at 8:00 am ET.

The real story of today’s stock price success is attributable to the growing understanding by investors and analysts alike that the company’s management team has been effectively and aggressively restructuring the company’s balance sheet, consolidating subsidiaries to streamline its business operations, and looking to take advantage of opportunities as they present themselves in a slowly thawing credit market as the economy stabilizes.

Ahead of Tuesday’s run for the finish line, making the need for the scheduled Appeals Hearing on April 29, 2010 moot, analysts at Edmunds.com have forecasted April vehicle sales to be up by 21 percent on a year-over-year basis. This would bring the April vehicle sales to just under 1 million, and a projected Seasonally Adjusted Annualized Rate (SAAR) of 11.2 million vehicles. This does represent a drop in sequential month-to-month sales, which has been brought about by a reduction in incentives by the industry in April.

“In March, incentives really helped boost car sales — especially since Toyota’s high-profile recalls led consumers to expect huge bargains. April incentives averaged nearly $200 less per vehicle industry-wide and sales fell along with incentives.”

- Jessica Caldwell, Director of Industry Analysis at Edmunds.com

Most analysts of Sirius XM Radio would like to see the industry run rate at or above 1 million vehicles per month. This would assure that the 2010 full year projections of CEO Mel Karmazin that the company would grow its adjusted income from operations by 20%, add over 500K subscribers to its ranks, and top $2.7B in revenue would be attained.  A 1 million vehicle monthly run rate would allow for a nice upside surprise, as the current projections from the company are based on a annual SAAR of about 11 million vehicles. Edmunds.com analysts went on to say that:

“The economy is showing signs of recovery but consumers are still wary, so today car-shopping is largely about bargain-hunting. Traditionally, summer discounts are worth waiting for, but inventory may be spottier than usual this year. The next round of incentives may provide the best opportunity to pick up a great deal.”

- Jeremy Anwyl, Edmunds.com CEO

With Ford Motor Company (NYSE:F) reporting strong first quarter earnings Tuesday, and having a favorable OEM contract with Sirius XM, the Q1 Conference Call coming up next week should be an interesting one. With the company already releasing positive subscriber growth of just over 171K for Q1, getting into the details will provide the necessary clarity for investors and analysts. The company managed churn well at 2.0% in Q4, and must maintain this number or below to keep the naysayers at bay. The company has sacrificed average revenue per unit, ARPU, in the past, to beef up its customer retention programs. I would suspect that they will continue this practice. In addition to subscriptions, the important revenue drivers will be the increased fees for multi-subscriber, internet, and the royalty fees that were implemented on July 31, 2009.

There are many positives that are beginning to fall into place for the company, its investors, and its consumers. For today, a major milestone was overcome, and congratulations are in order for all of the company’s loyal following.

Position:  Long SIRI

Contact the Author: denniscosta@satelliteradioplayground.com