I have never paid much attention to SIRI’s short interest. The stock is always in the top five of the Nasdaq’s short interest report because the company has never shown a profit and it issued convertible securities in the post merger chaos. I have never seen much correlation between the report and the short term price movement in the stock. This report was different. It may be telling us where the stock is headed in the short term and why.
The raw numbers are fairly easy to understand. The new report covered the period from May 15 to May 29 and showed that the short interest rose from 147.3 to 175.7 million for an increase of 28.4 million shares. The implications for the price per share are a little more difficult to comprehend. It is generally accepted that the stock is being shorted by a group of hedge funds. These guys are pros. They do their homework. They don’t short a stock on some whim. If you are an investor in SIRI, you should be asking the question what do the pros see that I have missed? It is a question that most amateurs fail to ask. The final thing you need to know is that these hedge funds are not penny flippers. They shorted the stock expecting a 20-30 per cent return.
If you look at the historical quotes for the period from May 15 to May 29 you will find that on May 19 the stock’s high was 38 and on May 20 it was 39. On no other day was it over 37. That implies that the bulk of the shorting took place between 35 and 38. Since June 1 we have been stuck in a rut between 33 and 35 with low volume. It is highly unlikely much of this short position has been covered.So what are the pros seeing? The intermediate term is fairly simple and it is not pretty. Chrysler and GM went bankrupt. Chrysler has not produced a car in two months. Sales are up this quarter over last but are being made by companies that have less sat radio penetration than Chrysler and GM. The second quarter is always the worst quarter for SIRI. It all adds up to a loss of another 350k subs and bad news in August at the next conference call.
Okay, but what about the short term? We are supposed to be getting that Apple App “in the second quarter” and the pop in the stock. So if the stock is going to 48, 58 or some other magically number why didn’t the pros wait and short it at that higher number. The answer is fairly simple. The pros are betting that the app has been delayed and we are headed back to the mid twenties. I guess we will know who is right in the next two weeks. The Duke is betting that the pros got it right.
Last week I told you the trading range had compressed to 30-36. If we throw out a rogue trade made before the premarket opened on Monday, the high for the week was 36 in the Monday premarket. The low was 32.5 on Thursday. The top and bottom of the trading range contracted so that it is now 33-35, making it meaningless. The stock is now an overheated pressure cooker and the contraction of the top and bottom imply that there will be an explosive move up and down. The only question left is which move will come first.
By “The Duke”
Great article, but I would have looked at it the other way: DJs command $100-200 per hour to host a private party. Sirius provides the same service for much less. If a subscriber wanted to ’short’ the Sirius business model, he gets a subscription to Napster or Rhapsody and pays essentially the same amount to choose what songs he wants to listen to, knowing that it’s a lot more work setting up a playlist but might one day become a DJ at a party. There aren’t many people who do that. Thus, the Sirius business model is not itself under attack.
I was in Napster four years after it went public and the ‘public’ was still convince that Napster was illegal. It will be years before the average person on the street is convinced that Sirius is not on the brink of bankruptcy. That’s what the level of short sales means to me. It will unravel as Mel sticks with the plan…and the economy starts to regain positive momentum.
A pressure cooker indeed and the dog smells something cooking and is wagging his tale by the kitchen.
By far, this is the craziest stock I have ever owned. Sweet as honey yet deadly as poison. Like sex in a car wreck.
I do have a long position. But the more I think about it, the ONLY way to feel good about this stock(at least for the foreseeable future) is to TRADE this stock. Trade the volatility and use your long position as a hedge and visa versa. To hold a long position but trade a chunk in and out on the dips and pops.
Making small profits thru trading might take the sting off the pain that many longs are feeling. The bulk of my money invested in Sirius was at $6.50 a share(OUCH!). I managed to use the dip below .10 cents a few months ago to average down to just below a buck at .99 cents. Now I have over 20,000 shares with about $3000 cash in the bank and another $3000 coming by august.
If I DO invest that chunk in Sirius, it will be to trade it while leaving my long position alone for now. I can trade it in and out on the pops and drops of this volatile stock from hell and let the rest ride. I think it gives me more options. Worse case scenario…If I invest that first 3 grand now and it suddenly drops into the 20s again, I can look at it as I added to my position and lowered my pps. I can then wait until August and if the stock is still in the 20s I can buy more and then cash out the 6 grand in stages on the way up.
OR…if the stock REALLY pops UP I can cash that 3 grand out when it hits the previous recent high of .64 for almost a double and let the rest ride to $1 and then cash out for good. If it drops after hitting .64 instead, I can reinvest my profit and the intitial 3 grand and compound for the next pop.
I am just tired of passively holding or adding more only to hold it ALL in the hopes of a HUGE pay off down the road. 20,000 shares is a lot for me, and I am content with letting that ride for awhile…as I TRADE any future bought shares.
Anyway…thats my thinking.
I guess the only decision to make now is…should I buy that chunk I plan to trade now at .34 cents…or wait to see if that possible “drop” into the 20s happens? Or I could buy in smaller chunks of $1,000 to hedge my bet. Ugh. Decisions decisions. LOL.
Thanks for the article. Food for thought.
The June 1st deadline for GM bankruptcy has to be the reason for the increase in Short interest. It can’t be dismissed.
Sirius could not release the iPhone app before Apple released the 3.0 software much less the new phone with it’s tags to the iTune store.
Plus everyone is forgetting how important Faters day. It makes sense now, that SIRI can’t release the iPhone App before it’s retail partners get an opportunity to sell their devices for Fathers day. The Sportster is more important to Sirius now that the Auto’s are in decline.
The apps to iPhone and Blackberry cannibalizes these partners.
RIMM releases earnings this week and the reality is that Blackberry is more important to Sirius than the iPhone. Even Howard uses the Storm.
Hope is still alive for Mel to keep his Q2 promise, for about 10 days.
I think the iphone app is VERY important. As is the Blackberry to Sirius. The battle WAS between Sat Radio and Terrestrial Radio. Now its between Sat Radio and Internet Radio. Smart phones are a HUGE battleground in this war. For Sirius to worry about canablaizing it’s sales of the sportster as the reason for the iphone app delay is RIDICULOUS. I’m sorry.
The future for Sirius is in the software. The only hardware that should matter now is the car radios. To focus on portables is so last year.
Anything under 300 million shares short is extremely small for this company. As Ive said time and time again, its not the number of shares short, its the consolidated effort and constant attack of the short that is the problem. The actual number of shares short is irrelevant, unless in the hands of only a few traders. Only thing these traders cant handle is high positive volume. Why they can knock it down, but it still gets its spikes. Until SiriusXM provides the street with concrete evidence of success, this will probably continue for a bit. Lent shares to short arent even all being used to short. So the ultimate direction is up based on this information. Or waiting for higher prices to begin a short. I read nothing useful in this article. His points are irrelevant, and pure speculation.
The rise in short interest is complete speculation of the GM news, taking full advantage of the last major negative sentiment they could see coming. Really not that complicated. Duke is making this out to be more than it is. You can read NOTHING into the iphone app news from the SI report. In fact, is borderline insanity to suggest so.
For every 1 million shares owned, a one penny move in the stock price equates to a return (or loss) of $10,000. The short interest changed by 28 million. If your assumption is right, and the majority of shorting happened between 35 and 38, I will use the 35 number. If they covered at 32, which is where the stock price stayed for a few days, you are looking at a 3 cent return on 27 million shares, or $810,000. Not a bad return for a 15 day period.
Shorts are not into Sirius for a 20-30 cent move. They are in for the millions of shares on 3-10 cent moves.
I’m not arguing the future, just the next 2 weeks, contracts and inventory. Sirius plans for the smart phones is a given.
little contradiction here in duke’s analysis:
duke says: “The pros are betting that the app has been delayed and we are headed back to the mid twenties.”
but, earlier duke says: “These guys are pros. They do their homework. They don’t short a stock on some wimp.”
my question to duke is why would the pros, who “do their homework” and “don’t short a stock on some wimp” actually “bet” on “some wimp” as they appear to have done if duke’s analysis is correct?
they certainly don’t know what is happening with the iPhone app…how could they? is duke suggesting that they have some mole in either apple or siri that gave them insider information that it will be delayed? do they have some mole that plans on sabotaging the app? then, how do they know it will be delayed? pros would not make a “bet” on something like this without better information, right? I would like duke to please explain this.
I would thing that the additional short position had more to do with the GM bankriptcy deadline on June 1st and the shareholder meeting at the end of May. They bet wrong. You better tell your hedge fund buddies to cover now Duke.
I agree with Shark. I think they are shorting more out of the BK of GM and Chrysler and how they think that will impact the 2nd quarter.
Even Mel and company warned in their CC about the impact. BUT…if Mel is holding out some positive info and just doing a head fake to trap as many shorts as possible that would be cool. Although I am not holding out hope for that. I’d rather prepare for a brutal quarter and be surprised than expect a surprise and be disappointed. I already have a substantial long position. From here on out any more money I throw into Sirius, I plan to TRADE. The question is…do I buy some more NOW at .34 cents and sell on the possible pop to over .50 after the iphone app is released. Or hold for the downward spiral to the 20s some are predicting? THIS is my quandry right now.
A PENNY SAVED IS A PENNY EARNED.
OH BY THE WAY THAT PENNY IS WORTH $10 OR $100 OR $1,000 OR $10,000 DEPENDING ON POSITION. LOL
The shorts are obviously counting on negative news and spin to aid them in their cause. The iphone app is coming. We all know this. Has it been priced in? What if it includes some surprises? Like a more direct partnership with Apple. Like the rumored “BUY NOW” button seen on the slide of the iphone app at the CC in May? A direct link to the itunes store?
Also, what if SiriusXM creates a “dual” internet platform? One where it streams it’s regular programming, and another where it mimics the Pandora/Slacker platform? They could call it Sirius Jukebox or something. If they did that, they’d beat Pandora and Slacker at their own game.
The jukebox model would be free of course like Pandora/Slacker with upgrades to unlimited skipping for a fee.
And people could also pay to become full SiriusXM subscribers with all their great commercial-free /uncensored music, sports, comedy and talk content we know and love. Of course this option would INCLUDE the jukebox model.
Such a move would steal Pandora and Slacker’s thunder.
Just a thought.
Duke: Most of your posts are great but…
I really think the increase in shorts is more related o the GM and Chrysler situation……
There is no indication anywhere, not even Sirius customer service that the iphone app is delayed…
I think your comments are interesting Duke. But let’s look at the scale of these so called professional hedge funds. An interest of 28 million short shares times about 35 cents is less than a $10 million bet targeting a $2-$3 million return. This is with a company with $3 billion in debt (approx) and about a $1.5 billion market cap. I don’t believe $10 million in a company with $4.5 billion in market cap is material. Since so little of the company is trading these days, with the decrease in volume, sure there can be short term overreaching movement up or down. But, the real issue is the valuation of Sirius, which under any valuation metrics is going to be significantly more than $4.5 billion. I’ll hold my mid-six figure shares and we’ll talk in a year or so after the economy rebounds, SIRI refinances its debt down, and the auto work is more or less back to normal.
AND ANOTHER THING DUKE,,,,,
You’re warning of another horrible quarterly report and ANOTHER 350k sub loss…….
When did we lose 350k subs? NEVER!!!!! Most of that was the result of a change in the way subs are counted. There we’re only a little over 100k SELF PAYING subs lost in the 1st Q.
Do you think that “the pros” missed that detail and shorted SIRI under the wrong impression?
This means only one of 2 things,,,,,
1. The pro’s are dumb
or
2. You’re wrong
Duke,
Just to add….it is easy to see where you come from and your reporting is sub par…in fact you lie when you state the following” Sales are up this quarter over last but are being made by companies that have less sat radio penetration than Chrysler and GM.” Hyundai and Kia have 100% saturation with Satellite radio on all their models. Time to call you out yet again.
this is true but lots of shorts are buying/selling just a few hundred shares with a long position in tack, i fing myself needing 200 more under .45 in case of the rs…@Newman