Last year, Warren Buffett, through his conglomerate Berkshire Hathaway (BRK.A +0.80%) (BRK.B +0.69%) was a huge net seller of stocks. The Oracle of Omaha took a hacksaw to his two largest stakes in Apple and Bank of America, selling a massive $133 billion against just $6 billion in buys through the first nine months of 2024.
The large selling action makes the stocks Buffett did buy all the more notable. Of the 2024 buys, Berkshire has continued to increase its stake in one low-priced, 4%-yielding value stock not only through 2024 but also recently in 2025, even after a significant early year bounce. Here's why.
NASDAQ: SIRI
Key Data Points
A merger arbitrage play becomes a value investment
Berkshire has actually been involved in Sirius XM (SIRI 0.80%) stock since 2016, when it bought the Liberty Sirius XM tracking stock. Liberty Sirius XM tracked John Malone's Liberty Media investment in Sirius in a separate security, before the two entities merged back in September.
Berkshire upped its stake in Liberty Sirius XM in the beginning of 2024, when it was announced the tracking stock would merge with the regular shares. Given the tracking stock traded at a discount to traditional Sirius XM common shares, Berkshire piled in, banking on the seeing the tracking stock's discount close.
However, Sirius' stock actually plunged in 2024, as the business continued to show declines in subscribers, revenue, and free cash flow.
Yet Berkshire Hathaway continued buying even after the merger, betting on a turnaround in Sirius' business. Since Berkshire now owns roughly 35% of the stock, it must disclose trades as they happen, not just once per quarter.
On Feb. 3, Berkshire disclosed that it had continued buying Sirius stock after the company's Jan. 30 earnings report, adding another 2.3 million shares for $54 million, even as the stock rose off its lows. That means Buffett or his investing lieutenants must have liked what they heard on the earnings release and call.
Sirius XM shows glimmers of a turnaround
At first glance, Sirius XM's Q4 report might not inspire confidence. Revenue was down 4.3% year-over-year, and the company's overall full-year 2024 figures were down across both subscribers and revenue.
However, the fourth quarter showed one key sign of improvement, in that the core Sirius XM segment grew subscriber net additions by 70,000 with 149,000 self-pay subscriber additions offset by a 79,000-subscriber decline in paid promotions.
With 33.2 million Sirius XM subscribers, that may not seem like much. But it marked the first quarter in which the core Sirius XM segment posted a quarterly increase in net additions since the second quarter of 2023, when the company only added 23,000 net subs. Thus, the net adds could mark a break from the downward trend of declining subscribers over the past two years.
Sirius has been making attempts to lure back in self-pay subscribers and lower churn, offering a wider variety of skinnier packages, all while adding premium content, such as a new initiative in podcasting. Sirius was a late to the podcasting craze, but last year's podcast investments appears to be paying off, as podcast advertising revenue grew 24% in the quarter.
Cost cuts and capital returns continue
Another positive came on the cost side. During the quarter, the company was able to reduce just about every operating expense line item, enabling Sirius to actually grow operating income and net earnings per share, despite year-over-year revenue declines. Diluted earnings per share actually grew almost 24% to $0.83, despite the 4.3% decline in revenue.
Management has already announced a lower 2025 investment plan to focus on the company's in-vehicle listening audience. As part of the plan, Sirius aims for an additional $200 million in cost cuts, and thus forecasts an increase in free cash flow to $1.15 billion in 2025, up from $1.02 billion in 2024.
Sirius continues to share that increased profitability with shareholders, as management was able to restart share repurchases following the closing of the merger with Liberty Sirius XM in September. While Sirius is focusing more on deleveraging and bringing down debt, management did repurchase stock for the first time in five quarters in Q4, retiring 0.3 million shares at multiyear low prices.
Can Sirius keep up the improvements?
Of course, one positive quarter doesn't make a trend. Furthermore, Sirius is rolling out some features that may actually increase churn in the first half of 2025, such as one-click cancellation, reduced marketing outside the core audience, and shortened introductory offers.
That could cause the subscriber count to reverse into declines again in the first half of the year. However, those measures are also meant to increase customer satisfaction and the quality of the existing subscriber base.
Sirius' stock has already had a strong 20% rise to start 2025 on the back of the solid earnings report, but is still a good 60% below the levels it traded at for most of 2022. So if the company can show continued stabilization in its subscriber base and higher profit margins, there could be more upside to come. After all, the stock still trades at just nine times last year's cash flow number, even after the early year spike.
