One of the more interesting turnaround stories in the market is that of Sirius XM Holdings. As the stock plunged by more than 58% in 2024, none other than Warren Buffett's Berkshire Hathaway (BRK.A +0.16%) (BRK.B +0.14%) scooped up even more shares.
Berkshire now owns about 33.2% of Sirius, even though the news got worse for the satellite radio leader as it closed out the year. In 2024, the company continued to shed subscribers, revenue, and profit, culminating in the announcement of a "refocusing" of the business in early December.
Berkshire seems to be betting on a turnaround in 2025. Here are all the things Sirius is working on to improve things, and what interested investors should look out for in the year ahead.
NASDAQ: SIRI
Key Data Points
Preguiding to lower revenue, higher cash flow
Sirius has already given a preliminary 2025 outlook, announced in an early December press release, in which it guided for lower revenue and adjusted EBITDA, but higher free cash flow.
|
Metrix |
Revenue |
Adjusted EBITDA |
Free Cash Flow |
|---|---|---|---|
|
2024 guidance |
$8.675 billion |
$2.7 billion |
$1 billion |
|
2025 guidance |
$8.5 billion |
$2.6 billion |
$1.15 billion |
Data source: Sirius XM 12/10/24 press release.
Sirius seems to have downgraded its expectations for growth, emphasizing in the release that it will refocus marketing efforts on its "core" automotive customer, with an additional $200 million in cost cuts.
Trying to market outside the vehicle, Sirius' traditional place of strength, to smartphone-only subscribers doesn't seem to be going as well planned. An increasingly price-sensitive consumer who probably already has a streaming app on a phone may be hesitant to switch to Sirius' somewhat expensive subscription, despite Sirius' unique radio stations and proprietary content.
So it appears Sirius is retreating, lowering its immediate ambitions but increasing its focus.
How Sirius plans to turn things around
Sirius' management has laid out some steps to try to hang on to trialing customers and attract new audiences in a few different ways.
First, Sirius used to sell a few different packages, but they were all fairly comprehensive, stuffed with content, and ranged from $11 to $22 per month. Management is now breaking Sirius' content offerings down into different category blocks. Sirius' new packages, just unveiled a couple of months ago, will consist of a music-only tier for $8, then news and talk each available for $5, and then the sports tier for $8 per month.
Another step toward luring penny-pinching consumers is the launch of a free ad-supported tier. Sirius just launched this free tier back in August. Currently, it's only available in vehicles with certain technology capabilities, and it wont be available on the Sirius XM app. Still, as more modernized vehicles are sold, look for this offering to potentially expand Sirius' audience.
Finally, Sirius is also enhancing its premium tier. Specifically, Sirius has invested in its technology stack over the past year, rolling out features such as the new and improved Interactive Premium bundle. This bundle will allow users to, say, hear a song on Sirius, then save it to a customized playlist for self-curated listening experiences later on. The new features will aim to take the best of Sirius' current real-time radio but add self-curation and AI-powered personalization capabilities that are currently more the hallmark of streaming competitors.
Image source: Getty Images.
Will it work?
A lot of these new features were unveiled over the past summer and fall, before the December announcement of a retrenchment. However, these new technology and pricing features are still likely to continue rolling out.
It's not a certainty they will pay off, though. One concern is that subscribers may downsize their packages from the current comprehensive packages to more stripped-down options based on their listening tastes. It's also possible the increased choice may be overload, turning off prospective customers with too many options.
But on the positive side, Sirius' new pricing could be a prudent move to meet modern consumers where they are. Investors really won't know what's working until Sirius' upcoming earnings reports. But given the December press release, investors should probably brace for a lackluster Q4 when the company reports on Jan. 30.
Is Buffett betting that Sirius will pull a Netflix?
Sirius XM is no doubt a cheap stock, trading at just 7.5 times this year's free cash flow estimates and 6.6 times next year's free cash flow guidance. While that is quite cheap, the company is also heavily indebted, so there is the potential that Sirius could become a value trap.
That means Sirius investors need to bet on some of these new product innovations eventually returning the company to profitable growth.
If I had to bet, I would say the free ad-supported tier may be the thing that allows Sirius to return to growth. One recent success story with an ad-supported tier is Netflix (NFLX 0.91%). Like Sirius, Netflix had stubbornly stayed a premium subscription service for a long time, but it eventually relented and unveiled a lower-cost ad-supported subscription tier two years ago.
These days, programmatic digital advertising tools help publishers attract higher ad prices through more precise targeting, and this better digital advertising technology probably pushed Netflix to change.
The results seem to speak for themselves. Netflix attracted 22 million subscribers to its ad-supported tier in 2022, but it has since grown that figure to 70 million as of Q3 2024. Meanwhile, Netflix has continued to show strong, accelerating revenue growth and expanding profit margin, with the advertising tier probably playing a significant part.
So can Sirius pull "a Netflix" to turn itself around? The initial 2025 guide isn't a great sign, but investors should look out for management commentary on the new free ad-supported tier. If that shows success, it could be a sign of better times ahead.
