On a day when the S&P 500 challenged all-time highs and the Nasdaq Composite Index briefly hit an all-time high, it’s worth taking a closer look at stocks that aren’t carrying their weight. Shares of Sirius XM Holdings Inc. (NASDAQ: SIRI) were down more almost 6% in midday trading after its earnings report, and its shares are now close to the lowest levels they have seen so far in 2019.

Some initial reports suggest that the earnings “miss” is not that important, but that’s not how the market reaction is treating it on a day when record highs are in the air. Investors should also consider that Sirius shares are now within about 6% of their 52-week low, and they are down almost 25% from the high seen within the past year. There is also the ongoing peak-auto theme that has to be considered.

Sirius reported a profit of $162 million, or $0.03 per share, for the first quarter of 2019. That compares with a profit of $289.4 million, or $0.06 per share, in the first quarter of 2018. The consensus analyst estimates had called for $0.04 to $0.05 per share, depending on which source was used.

While those earnings numbers looked bleak, Sirius XM said that it had $162 million in charges from its Pandora acquisition and saw other charges of $76 million. Revenues on a pro forma basis, including the Pandora acquisition, were up 10% from a year ago to about $1.9 billion, while the Sirius XM revenue rose 8% to about $1.5 billion. The Refinitiv consensus called for $1.77 billion.

While Sirius XM shares are lower, investors need to consider that Wall Street analysts who make up the consensus often find themselves in a position where integrating merged companies into raw earnings and revenue numbers is less than a science.

The company showed that its adjusted EBITDA rose by 27% to $567 million. Also worth noting was that its adjusted EBITDA margin of rose over 400 basis points to 30.5%.

Sirius showed that its self-pay subscribers rose by 131,000 net and now topped 29 million. Much of the focus ahead will be on its acquisition of Pandora Media. After all, Sirius XM paid about $3.5 billion to acquire the streaming music company.

Pandora’s advertising revenues reached a first-quarter record of $231 million, (up 7%). Monthly active users at Pandora were 66.0 million in the first quarter, down from a much higher 72.3 million in the same period a year ago. Pandora also added 246,000 net new self-pay subscribers in the first quarter for a total of nearly 6.2 million self-pay subscribers.

Sirius also reiterated its existing SiriusXM self-pay net subscriber additions and issued full-year 2019 guidance for the combined company:

• SiriusXM self-pay net subscriber additions approaching 1 million
• Pro forma revenue of approximately $7.7 billion
• Adjusted EBITDA of approximately $2.3 billion
• Free cash flow of approximately $1.6 billion

Sirius investors were less than enthused after the report, with its shares down almost 6% at $5.79 in midday trading. The 60 million shares that had traded hands by 1:20 Eastern Time also was already double a normal day’s trading volume. Sirius has a 52-week trading range of $5.48 to $7.70, and it had a consensus analyst target price from Refinitiv of $6.88.

One issue that has to be weighing on any bullish views of Sirius at the moment is that the core satellite radio business is not growing as fast as it used to. While that may simply be the law of larger numbers and a maturing market at play, if there are fewer cars being sold then there are fewer opportunities for Sirius to get new car buyers to auto-subscribe. The whole ride-sharing theme and a public that no longer has to own cars (due to Lyft, Uber and so on) have to be considered as well. And for Pandora, current and future competition from the likes of Apple, Spotify, Amazon and others are hard to dismiss.

When companies have what appear to be growth numbers ahead and the shares react poorly, investors should pay attention. It’s often a bumpy process when companies begin to lose their growth stock status, and it can take multiple quarters (or years) for that shareholder base to rotate and adjust longer-term expectations.

Sirius CEO Jim Meyer said in the report:

SiriusXM’s first quarter of 2019 was an exciting time for the company. We’re thrilled to have completed the Pandora acquisition on February 1st and have been working quickly to integrate and coordinate the operations of the two businesses. The year is off to a strong start, and today we are issuing combined guidance for 2019 that shows continuing revenue, adjusted EBITDA and free cash flow growth… With the addition of Pandora to SiriusXM, we now have more to offer subscribers and listeners than ever before. Last month we created Pandora’s first-ever content team, and those talented professionals launched our first joint offering, Pandora NOW, a full-time SiriusXM channel and Pandora station and playlist, curated from Pandora data of the top-trending artists. In addition, we announced an array of SiriusXM’s top sports, comedy and talk hosts’ shows are now available as podcasts on Pandora. We also added more than 100 new music channels on the SiriusXM streaming platform — the largest addition ever — all of them based on our existing popular channels but perfectly crafted to fit any mood, occasion or activity.

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