Some Sirius Humble Pie
By Richard Saintvilus - 05/01/12 - 10:42 AM EDTTheStreet) -- I'm going to cut through the chase -- I was wrong on Sirius XM's
The Recent QuarterThe 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. Follow TheStreet on Twitter and become a fan on Facebook. 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.
Moving ForwardAs 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
Bottom LineA 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.
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