Warren Buffett has recently increased his investment in Sirius XM Holdings. Between October 9 and October 11, Berkshire Hathaway acquired an additional 3,564,059 shares of Sirius XM, totaling an expenditure of $86.7 million. This move raised its ownership in the firm to 32.1%. Sirius XM has faced hurdles this year as it deals with a drop in satellite-radio subscribers.
The firm depends on automobile sales and various promotional campaigns to transform listeners into paying subscribers. Nonetheless, Sirius XM possesses certain competitive advantages and a low valuation, which are appealing to Buffett. As the sole licensed operator of satellite radio, Sirius XM enjoys significant pricing power.
Buffett boosts his Sirius XM holdings
This situation enables the company to raise subscription prices in order to mitigate inflation impacts. Moreover, Sirius XM benefits from a revenue model centered on subscriptions.
This structure results in more stable operating cash flow in comparison to traditional radio broadcasters that primarily depend on advertising earnings. The company incurs fixed costs for transmission and equipment that remain steady, regardless of the growth in subscribers, which could potentially lead to increased profit margins over time.
Additionally, the company offers a robust capital-return program that features a $1.17 billion share buyback plan alongside a 3.9% dividend yield. Currently, its stock is priced at merely seven times anticipated earnings, marking the lowest valuation since it went public 30 years ago.
Warren Buffett’s preference for undervalued, enduring companies with strong competitive advantages is showcased through his investment in Sirius XM.
