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Sirius Investors Suffer From Selective Amnesia

Tickers in this article: NFLX SIRI
NEW YORK (TheStreet) -- Satellite-radio operator Sirius XM is only three trading days away from reporting first-quarter earnings results, and investors are starting to get nervous -- rightfully so.

A lot of that has had to do with the fact that the stock has not reacted, as it has in the past, leading into its quarterly announcement. There has always been a typical jump (at least) 10 trading days ahead of the report. Instead, investors have had to deal with the realities of insiders and, in particular, CEO Mel Karmazin, who sold 11 million shares last week at an average price of $2.20 for a profit of $25 million.

What struck me as odd was not the fact that Karmazin sold his shares. That was known -- he wanted to fund his charitable causes, a noble gesture. But, remarkably, some investors continue to think that the intent of the sale somehow applies a separate disclaimer to the 11 million new shares that just flooded the market, essentially "Yes, he sold, but ..."

It was disappointing to hear the howls resonating from Sirius longs suggesting "thank you for your shares, Mel!" The only logical conclusion from which I can draw from those remarks was: "Can these investors walk and chew gum at the same time?" I'm not convinced they can.

Since reaching a 2012 high of $2.41 on April 2, the stock has lost as much as 12%, dropping to $2.11 on Monday. My gut tells me that Netflix's report (another subscription service) has had a lot to do with the recent bearishness on Sirius.

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Rising gas prices have hurt not only consumer confidence, but also companies such as Sirius, which rely on discretionary spending. Upon the release of Netflix's first-quarter earnings report , the stock dropped 14%, the biggest decline since October.

What bothered Netflix investors (many of whom deserve a considerable amount of credit) is that they now see the light and understand that the company has significant headwinds with growth. The company said subscribers would drop considerably in the current quarter. Netflix is now focusing on "making money" rather than growing subscribers. It has essentially admitted that subscriber growth has (for all intents and purposes) stopped.

That is yet another correlation between the two companies, as Sirius has consistently evaluated its success on increasing subscribers rather than the bottom line. For Netflix, as disappointing as the report was, at least it now plans to focus on what really matters: earnings per share.

Expectations for the quarter

The question is, why haven't Sirius investors used this information to plan adequately for what might be a disappointing quarter? Growth of car sales isn't everything. It is interesting how Sirius investors were ready to compare the company to Netflix when Netflix was trading in the $250s and heading over $300. But now, somehow, there is "no comparison." As the company reports first-quarter earnings next Tuesday, astute investors need to asses if there is a Netflix-type scenario that may unfold.