Warren Buffett has recently acquired more shares of Sirius XM Holdings. Berkshire Hathaway allocated $86.7 million to buy an extra 3,564,059 shares of Sirius XM from October 9 to October 11. This move has expanded its ownership in the firm to 32.1%. The company has encountered difficulties this year, experiencing a decline in satellite radio subscriptions over a span of two quarters.
Sirius XM leans on robust automotive sales and a three-month promotional campaign to convert new listeners into paying clients. Despite these hurdles, Sirius XM possesses numerous competitive strengths. As one of the few publicly traded entities with a legal monopoly in America, it wields considerable pricing authority.
This advantage enables the company to raise subscription fees above the rate of inflation. Unlike conventional radio broadcasters that primarily earn revenue through advertisements, Sirius XM derived 77% of its net revenue from subscriptions during the first half of 2024, with about 19% from advertising.
Buffett’s Increase in Sirius XM Holdings
This model, driven by subscriptions, results in stable operating cash flow, which proves advantageous during economic recessions. Furthermore, Sirius XM benefits from predictable costs compared to traditional radio stations.
Although certain operational costs can vary, expenses related to transmission and equipment tend to remain consistent. This stability allows for the possibility of margin growth over time. The company also has a solid capital-return strategy.
This includes a $1.17 billion authorization for share repurchases alongside a dividend yield of 3.9%, which exceeds that of numerous S&P 500 firms. Buffett’s latest acquisitions in Sirius XM were made at a forward price-to-earnings ratio of only 7.
This is the lowest value since the company first went public 30 years ago. Warren Buffett is recognized for his preference for undervalued, durable companies that possess sustainable competitive edges. Sirius XM exemplifies these characteristics.
With its powerful pricing leverage, subscription-focused revenue model, predictable expenses, and appealing valuation, Sirius XM represents an attractive opportunity for the Oracle of Omaha.
