Recently, Warren Buffett significantly boosted Berkshire Hathaway’s investment in Sirius XM by 262%.
Berkshire Hathaway A (715,300 + 12,980) and B (475.92 + 7.55) reaching record closing prices. #Buffett $BRK.A $BRK.B
— David Kass (@DrDavidKass) August 31, 2024
This action might be unexpected considering Sirius XM’s challenges over recent years; however, there are multiple factors influencing Buffett’s choice. To start, Sirius XM derives a majority of its earnings from subscription-based services.
Such services commonly feature high-profit margins that contribute directly to net income.
Berkshire Hathaway hits another all-time high, now a member of the $1 trillion market cap club. Happy $BRK.B birthday to Warren Buffett! Hopefully, a new ukulele is on the agenda. pic.twitter.com/yYEJ86fuTF
— Paul R. La Monica (@LaMonicaBuzz) August 30, 2024
Although there has been some loss of subscribers, the firm has preserved its average revenue per user while slightly expanding both its gross profit and EBITDA margins. Additionally, Sirius XM holds a monopoly over the satellite radio sector in North America.
This lack of direct rivals allows the company to sustain robust margins and ARPU levels, even amidst stagnant revenue growth.
Every Friday, I share a weekly round-up of news regarding Warren Buffett and Berkshire Hathaway.
This week’s highlights include:
✨ Berkshire reaches $1 trillion
✨ Buffett marks his 94th birthday
✨ Continued sell-off at Bank of America
✨ CEO Pete Liegl of Forest River discusses succession plans…
— Kevin Carpenter (@kejca) September 1, 2024
Buffett’s unconventional gamble on Sirius
Moreover, Sirius XM has been heavily investing in exclusive content, such as celebrity-hosted podcasts, to enhance its attractiveness.
This approach may draw in new subscribers and stimulate growth. Ultimately, Buffett is recognized as a contrarian investor who identifies value in situations perceived as risky. In light of Sirius XM’s recent difficulties and the negative outlook following an impending reverse stock split, Buffett seems to view it as a hidden opportunity.
The reverse stock split is tied to Sirius’s forthcoming merger with Liberty SiriusXM Group and has generated undue negativity among investors. The company’s stable cash flow, undervalued status, and new investment strategies could offer an appealing chance for value-driven investors willing to take a cue from Buffett. Given the company’s strong unit economics, competitive edge, and strategic growth plans, there are compelling reasons to consider its stock prior to the upcoming reverse split.
