Monday, December 04, 2006

The SatRad Trader: How Will Sirius Trade Tomorrow?

Sirius reduced it's Q4 and Y06 subscriber guidance from 6.3 million to between 5.9 and 6.1 million. How will the stock react?

It seems analysts following the sector have anticipated this, reinforced by Bridge Ratings and NPD, and have lowered their estimates for subsciber additions to around this level. Is this news already priced into the stock? Will it be "sell the rumor", "buy the news"? Is this the announcement that shorts have been waiting for, a catalyst for them to cover? Remember when XM reduced their subscriber guidance on Nov. 6 to between 7.7 and 7.9 million? The stock price actually increased. Will this further the notion that, based on weaker than expected sales, SIRI and XMSR should merge?

In situations like this, the real issue is credibility. Management has raised guidance a few times, most recently from 6.2 to 6.3 million in August, which was reiterated publicly on November 8th. Mel's management team has delivered on it's promises until now. Will the market perceive this as a blip on the long term horizon, or will it be punitive? It depends on how well Sirius explains this to the investment community.