Some Sirius Humble Pie

NEW YORK (TheStreet) -- I'm going to cut through the chase -- I was wrong on Sirius XM's expectations for the quarter.

For as much as I have beaten the company up since its fourth-quarter earnings report, I think Sirius deserves a considerable amount of credit for what it has demonstrated over the past three months -- particularly in face of rising household budgets due to an increase in the fuel costs. I have always maintained that Sirius XM shares a lot of similarities with another subscription service in Netflix -- one that recently announced not only a decline in subscribers but went on to suggest that subscriber growth was no longer its focus.

However, what Sirius apparently does not share with Netflix is its ability to execute in the face of rising competition from Pandora and other IP delivery platforms. The company also demonstrates that, in addition to prevailing and overcoming pessimism from the likes of me, it has proven that its business model is just good enough to navigate through macro-economic issues. But does that now make it a good investment?

The Recent Quarter

The period ending in March, the company reported revenue of $805 million -- representing an increase of almost 0.2% above the $803.83 million it reported in the same period of a year ago.

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Remarkably, this was the fourth consecutive quarter in which the company has demonstrated an increase in revenue. Net income was $107.7 million, or 2 cents a share, compared with $78.1 million, or 1 cent a share, a year ago.

So for as much as I have criticized its business model, I think it is more than fair for me to point out that in many respects, its business is indeed working.

What is also worth pointing out is that as much as its "modest" price increase raised concerns, it seems it was precisely that that helped lifted the company's higher-than-expected profit. Even more impressive was the fact that the company grew subscribers by over 404,000 for the quarter. Although it was 4% below my "success target" of 420,000, it did top analyst expectations of 400,000.

Sirius ended the quarter with 22.3 million subscribers and I think the company certainly did enough to avert any notions that subscribers were going to churn out in a mass exodus. As far as guidance is concerned, the company now expects a net increase in subscribers of 1.5 million.

While it is still down from the 1.7 million it registered for all of last year, the increase in guidance does serve to alleviate some concerns regarding its ability to execute. The company expects revenue for the year to arrive at $3.3 billion -- slightly below Street estimates of $3.36, while free cash flow should log in at $700 million.

Moving Forward

As impressive as these numbers were, the prevailing question should be, what does it mean for the stock? I think this is where the battle between bulls vs. bears gets a bit heated.

I will gladly eat my crow and do so proudly -- and for that matter, even add a slice of humble pie for dessert. But the word "valuation" has to always matter in these discussions. Sirius answered several important questions with this report and did a remarkable job at putting doubters like me in their place. But investors have to ask themselves, will this performance justify a higher multiple -- given that is already expensive?

But that should not be confused with Sirius' business. As evident by this report, the company did a great job of staying focused amid all of the noise surrounding not only Liberty Media but the recent selling of shares by insiders. And for that matter, I think it is now fair for me to say that (perhaps) I might have exaggerated this a bit.

Be that as it may, I think the enthusiasm that investors are feeling today is deserved, but it should be tempered with realistic expectations going forward.

Bottom Line

A lot has been made of the $2.50 cap that I have placed on Sirius. That is mostly attributable to the expected move by Liberty. As the cloud of assumption hovers over Sirius, it seems, regardless of how it performs, that cloud will sometimes cause some rain. When investors look for shelter, they will often look to exit positions at any signs of strength.

Sirius showed a lot of promise in this report and it needs to build on this momentum to attract more investors and dispel other concerns regarding its inflated valuation. It's proven that its business appears to be sound, however there is plenty of work left to do in order to prove that can be a sound investment.