Warren Buffett‘s been selling a lot of shares recently. But his investment vehicle Berkshire Hathaway has also been adding a few too, including Sirius XM (NASDAQ:SIRI).
The stock’s fallen by 51% since the start of the year, but Berkshire increased its stake by 200% in the first six months of 2024 — and it’s kept going since. So should I consider buying it?
What does SiriusXM do?
SiriusXM has two main operating divisions. The core business provides satellite and online radio services and its Pandora division is a music streaming service.
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The company also has two main income sources. Paid subscriptions account for around 77% of revenues and advertising sales make up roughly 20%.
The business has an unusual route to market. The vast majority of new and used vehicles in the US come with a free trial of its services, after which users can choose whether or not to sign up.
Unfortunately, a lot of them aren’t – monthly active users have fallen from 61m in 2020 to 45m today. This might put some investors off, but I think the stock’s worth a closer look.
Cash flows
Berkshire’s been a consistent buyer of SiriusXM shares this year but that hasn’t stopped the stock falling. And at today’s prices, it looks very cheap.
The company currently has a market-cap of $9bn and generated $1.2bn in free cash in 2023. It expects to do something similar in 2024, which is 13% of the firm’s current market value.
A lot of this has been going back to investors. At today’s prices, the dividend yield has reached 4% and SiriusXM has also been buying back shares at a rate of 4% a year since 2014.
That’s an eye-catching return. More importantly though, the company’s been using its cash to address its declining subscriber base – most notably through podcasts.
Growth investments
There’s no way around the fact that SiriusXM is up against tough competition. The obvious examples are Spotify and Apple.
Nonetheless, the company’s been investing heavily in its talent roster. The recent highlight is the exclusive agreement it has signed with Alex Cooper, the world’s leading female podcaster.
An attractive content line-up is something that listeners could be willing to pay for. If SiriusXM can build it, the subscribers might well come – or at any rate, not leave.
The company’s route to market means it also stands to benefit from another ongoing trend. Higher car sales as a result of the shift to electric vehicles should boost subscriber numbers.
Should I buy the stock?
I don’t know whether it’s Buffett that has been buying SiriusXM shares, or one of Berkshire Hathaway’s other managers. But I think it looks interesting.
There are some clear challenges facing the business at the moment. But in my view, there’s a good chance the market might be overestimating these in the current share price.
If the business can arrest the decline in its subscriber base, the stock could be a real bargain. And at today’s prices, I’m tempted to think the risk might be worth the potential reward.
I think buying SiriusXM shares at today’s prices could well work out nicely for investors and are worth considering. It’s firmly on my list of stocks to think about buying.
