Buffett Bets big on Sirius XM

Warren Buffett recently increased Berkshire Hathaway’s position in Sirius XM by 262%.

Berkshire Hathaway A (715,300 + 12,980) and B (475.92 + 7.55) at all-time closing highs. #Buffett $BRK.A $BRK.B

— David Kass (@DrDavidKass) August 31, 2024

This move might seem surprising given Sirius XM’s struggles in recent years, but there are several reasons behind Buffett’s decision. First, Sirius XM generates most of its revenue from subscription-based models. These models tend to have high-profit margins that flow directly to the bottom line.

Another new all-time high for Berkshire Hathaway, the newest member of the $1 trillion market cap club. Happy $BRK.B birthday to Warren Buffett! Hope he got a new ukulele. pic.twitter.com/yYEJ86fuTF

— Paul R. La Monica (@LaMonicaBuzz) August 30, 2024

Despite some subscriber churn, the company has maintained its average revenue per user and slightly widened its gross profit margin and EBITDA margin. Second, Sirius XM has a monopoly in the satellite radio market in North America. This lack of direct competition helps the company maintain strong margins and ARPU levels, even with little revenue growth.

Every Friday, I publish a weekly summary of Warren Buffett and Berkshire Hathaway news.

This week's edition includes:

✨ Berkshire hits $1 trillion

✨ Buffett celebrates his 94th birthday

✨ Bank of America sell-off continues

✨ Forest River CEO Pete Liegl's succession plan…

— Kevin Carpenter (@kejca) September 1, 2024

Buffett’s contrarian bet on Sirius

Third, Sirius XM has been investing heavily in exclusive content, such as podcasts hosted by celebrities, to broaden its appeal. This strategy could attract new customers and invigorate growth. Finally, Buffett is known as a contrarian investor who finds value where others see trouble. Despite Sirius XM’s recent struggles and negative sentiment surrounding an upcoming reverse stock split, Buffett appears to see an undervalued opportunity. The reverse stock split is related to Sirius’s pending merger with Liberty SiriusXM Group and has caused undue pessimism among investors. Sirius XM’s consistent cash flow, beaten-down valuation, and new growth investments could present a compelling opportunity for value-driven investors willing to follow Buffett’s lead. The company’s strong unit economics, competitive advantages, and strategic growth initiatives make a case for considering its stock before the upcoming reverse split.