Warren Buffett has been buying shares of Sirius XM Holdings. Between Oct. 9 and Oct.
11, Berkshire Hathaway purchased an additional 3,564,059 shares of Sirius XM for $86.7 million. This increased its stake in the company to 32.1%. This year has been challenging for Sirius XM due to declining satellite-radio subscribers.
The company relies on auto sales and promotional offers that convert listeners into self-pay subscribers. However, Sirius XM holds competitive advantages and has a cheap valuation, which attracts Buffett. Being the only licensed satellite-radio operator provides Sirius XM with pricing power.
Buffett increases Sirius XM stake
This allows it to increase subscription prices to counter inflationary pressures. The company also benefits from a subscription-driven revenue model.
This leads to more consistent operating cash flow compared to traditional radio companies that rely on advertising revenue. Sirius XM’s fixed transmission and equipment costs remain stable regardless of subscriber growth. This could lead to margin expansion over time.
The company also has a generous capital-return program, including a $1.17 billion share repurchase authorization and a 3.9% dividend yield. The stock is trading at just seven times forward earnings. This is the lowest valuation since it became a public company 30 years ago.
Warren Buffett’s affinity for cheap, time-tested companies with sustainable moats is evident in his investment in Sirius XM.
