There are dozens of stocks in Berkshire Hathaway's massive $370 billion portfolio. Investors are certainly familiar with some of the top holdings, like Apple and Coca-Cola.
But there's a much smaller position that investors might not have noticed. Should you buy this under-the-radar Warren Buffett stock with $1,000 right now?
A poor track record
The business I'm talking about is Sirius XM (SIRI +0.00%). The satellite radio provider's namesake service allows users to listen to music, news, sports, and other audio entertainment via an app. It generates revenue from subscriptions and advertising. Sirius XM also owns Pandora, a streaming service that has paid and free options.
Despite the company operating well-known audio services, shares have performed terribly. They have tanked 37% just this year (as of April 8), while the S&P 500 and Nasdaq Composite have posted solid gains. And Sirius XM stock is down 42% in the past five years. That's not an encouraging sign.
Reasons not to buy Sirius XM stock
It's easy for the average person to blindly follow in the footsteps of top investors and buy the same stocks that they own. Because Buffett has such a fantastic long-term track record, it makes sense why investors want to own the businesses he does. However, I think in this case, it's best to avoid Sirius XM.
The first reason to stay away from this company is because it continues to struggle with adding new subscribers. Sirius XM had more subscribers five years ago than it does today. With Pandora, it's the same story. Growth has been hard to come by. For a company that generates 77% of its sales from subscription fees, seeing a declining overall user base is a major red flag.
NASDAQ: SIRI
Key Data Points
Sirius XM typically comes pre-installed for a fixed time period for new vehicle purchases. The hope is that consumers will upgrade to subscriptions following the free-trial period. This hasn't been a successful strategy, though. Perhaps this trend helps explain the monthly churn rate of 1.6%, which gauges customer turnover.
Competition in the audio entertainment space is fierce. Sirius XM faces dominant tech and internet giants like Apple, Alphabet, and Spotify. These companies have wildly successful streaming platforms. I believe this is a key factor making it hard for Sirius XM to add new users.
The rise of smartphones and the internet have diminished the advantage a satellite radio operator like Sirius XM once had. Plus, newer vehicles these days allow consumers to easily connect their mobile devices and listen to whatever music or podcasts they want to.
When identifying long-term opportunities, investors should focus on businesses that are in sound financial shape. Here's another area where Sirius XM comes up short.
To be fair, the company is consistently profitable. It generated $1.3 billion in net income in 2023. And its operating margin has averaged a superb 23% in the past five years. These are encouraging data points.
But look at the balance sheet and it's easy to be pessimistic. As of Dec. 31, 2023, Sirius XM carried more than $9 billion in long-term debt. This resulted in huge interest payments that equaled 22% of operating income in 2023. Investors should tread cautiously, because this adds financial risk. If there's an economic downturn, the business might run into trouble.
Despite Buffett's Berkshire Hathaway owning a stake in Sirius XM, I view the company as a poor investment.
