Sirius XM Holdings (SIRI) is flirting with multi-year highs just days ahead of earnings, making it one catalyst shy of new highs. Let’s look at a few of those potential catalysts that could catapult SIRI stock to new highs after earnings.
Can Subscriber Guidance Top 1.8 Million?
One reason that SIRI stock has outperformed the NASDAQ to the tune of 13% versus 3% in 2015 is because of its rapid subscriber growth.
This was supposed to be the year that SIRI’s business model was challenged, as legitimate competitors such as Pandora (P) and Apple (AAPL), and wireless technology from the likes of AT&T (T), battled for consumers’ in-car dollars. Instead, SIRI has continuously increased net subscriber guidance, quarter-after-quarter.
In January, SIRI was expecting 1.2 million net additions for the year, yet that number has climbed all the way to 1.8 million. During SIRI’s last quarter, it added 692,000 net new subscribers, with record-highs in both paid and self-pay subscribers. Further, that 692,000 figure represented a 46% year-over-year increase.
As a result, investors can conclude that SIRI can weather the storm of new competition in the space, and still provide a unique and valuable service that consumers are willing to pay for. With that being established, will SIRI once again increase guidance and see its stock break out to new highs?
Buybacks Will Determine Shareholder Sentiment
SIRI’s big news last quarter was an added $2 billion to its existing buyback program, giving the company $2.5 billion for its share repurchase plan. At its current valuation, $2.5 billion would buy back nearly 12% of SIRI’s outstanding shares.
This brings SIRI’s aggregate buyback total to $8 billion, and since Sirius XM does not pay a dividend, buybacks are the way that SIRI returns capital to shareholders.
Investors will monitor exactly how much SIRI spent on buybacks in its first quarter following this hike. With subscribers and free cash flow surging, investors anticipate big spending on buybacks. As a result, investors should expect SIRI stock buyback activity to play some role in investor sentiment when third-quarter earnings are reported.
What’s Going on With Howard Stern?
All things considered, nothing matters for SIRI stock as much as the contract status of Howard Stern. This will be the final earnings report and conference call prior to January, when Stern’s five-year contract expires.
Like him, love him, or hate him, Howard Stern is the most successful radio personality ever. His exclusivity to Sirius XM has been a big reason for the company’s continued success. To get an idea of Stern’s value to SIRI, the company has reportedly compensated him $95 million per year since 2010. However, SIRI’s subscriber base has since grown significantly, and while $95 million accounts for more than 17% of SIRI’s total SG&A costs last year, rest assured that Stern is going to want a lot more.
The big question is, how much is Sirius XM is willing to give? With Stern devoting much of his time to television, there are some concerns that he no longer wants a big commitment to SIRI. Therefore, expect a lot of questions regarding negotiations, with every answer dissected and having the potential to move SIRI stock.
Top and Bottom Line Won’t Matter Much
All things considered, SIRI is expected to grow revenue 8.7% to $1.15 billion and earn $0.03 per share, better than the $0.02 last year. While important, a slight miss would be overlooked in favor of better-than-expected net subscriber growth or progress in re-signing Howard Stern.
The last thing SIRI wants is to go in the direction of ESPN Radio, which lost much of its top talent in 2015 to contract expirations. Thus, signing Stern and maintaining subscriber growth remains a top priority for investors, with buybacks serving as a gauge of confidence on behalf of management.
Pay attention to these things on Thursday, and if the buzz is favorable, SIRI stock will be at new highs by week’s end.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.
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