Warren Buffett has been buying shares of Sirius XM Holdings. Berkshire Hathaway invested $86.7 million to purchase an additional 3,564,059 shares of Sirius XM from Oct. 9 through Oct.
11. This increased its stake in the company to 32.1%. Sirius XM has faced challenges this year, dealing with a slump in satellite-radio subscriptions over two quarters.
The company relies on strong auto sales and a three-month promotional offer to convert first-time listeners into paying subscribers. Despite these challenges, Sirius XM has several competitive advantages. As one of America’s few publicly traded legal monopolies, it has substantial pricing power.
This allows it to raise subscription prices to outpace inflation. Unlike traditional radio operators that generate most of their revenue from advertising, Sirius XM obtained 77% of its net sales from subscriptions in the first half of 2024. Around 19% came from ads.
Buffett’s Sirius XM share increase
This subscription-driven model leads to consistent operating cash flow, which is valuable during economic downturns. Sirius XM also enjoys cost predictability, unlike terrestrial radio operators.
While some operational expenses fluctuate, transmission and equipment costs remain relatively constant. This enables potential margin expansion over time. The company has a robust capital-return program as well.
This includes a $1.17 billion share repurchase authorization and a 3.9% dividend yield. The yield surpasses that of many S&P 500 companies. Buffett’s recent investments in Sirius XM were at a forward price-to-earnings ratio of just 7.
This is the cheapest since the company went public 30 years ago. Warren Buffett is known for favoring cheap, time-tested companies with sustainable competitive advantages. Sirius XM embodies these qualities.
The company’s strong pricing power, subscription-based revenue model, cost predictability, and attractive valuation make it a compelling investment for the Oracle of Omaha.
