Warren Buffett recently announced his retirement as CEO of Berkshire Hathaway (BRK.A 1.53%) (BRK.B 1.31%). The Oracle of Omaha is certainly going out on a high note, having sold a large number of winning stocks in 2024, cementing his record as the greatest investor of all time.
Yet Berkshire wasn't only selling stocks last year. Buffett and his investment team also added to certain holdings, making those buys all the more intriguing. Two such adds were Sirius XM (SIRI 1.79%) and VeriSign (VRSN 0.57%).
Today, which Buffett holding looks like the better buy?
Why Buffett likes these two companies
Likely, what attracts Buffett to these companies are their economic "moats" and recurring, somewhat dependable subscription revenue. Given their moats, Sirius XM's and VeriSign's revenue streams come at high margins, enabling each management team to return capital to shareholders through share repurchases and dividends.
VeriSign is the official registry of all .com and .net internet addresses, and operates two of the 13 core root zones for the global internet. That's a powerful monopoly, by which all .com and .net IP addresses must pay VeriSign a subscription fee every month.
Sirius XM is somewhat monopolistic as well. It's the only satellite radio company, and primarily serves automotive customers. As opposed to AM or FM stations, Sirius XM's technology enables many more channels across a wide range of music, sports, and talk/news to be delivered to its customers. Its premium offerings and exclusive content appeal to high-net-worth people and families.
However, the advent of streaming has somewhat penetrated Sirius XM's moat, prompting the company to take some countermeasures.
Revenue trajectories are going in opposite directions
As noted, Sirius XM's revenue stream is facing more headwinds than VeriSign's.
Although the total number of .com and .net domain names declined slightly in its recent quarter, VeriSign has been able to grow revenue due to contractually allowed price increases for .com and .net. So, revenue grew 4.7% last quarter.
The good news for VeriSign is that it expects the domain name declines, which have been occurring since after the pandemic's height, to lessen this year, and perhaps turn positive. VeriSign also just signed a new six-year contract with the Internet Corporation for Assigned Names and Numbers (ICANN) and the National Telecommunications and Information Administration (NTIA), which will enable it to retain its monopoly for another six years. Importantly, as with the last contract, VeriSign will be able to raise .com prices up to 7% in each of the last four years of the contract.
So with the contract renewal, the domain name cycle potentially turning, and price increases in the out years, VeriSign looks like a good bet to grow higher than GDP over a multi-year period.
Sirius XM, on the other hand, has seen subscriber and revenue declines since the fourth quarter of 2022, when interest rate increases bit into consumer and auto demand. Of note, Sirius onboards a lot of customers through trials paid for by automakers, as a perk to prospective car buyers. When those trials run out, the buyer then has to decide whether to subscribe.
So, as new car sales slowed, so did Sirius XM's main marketing channel. Combine that with modern cars being able to connect with smartphones and play internet streaming stations, and that's another headwind.
Last quarter, Sirius XM's subscriber count declined by 1.7%, and its Pandora segment saw a 4.8% decline, leading to 4.3% revenue decline. However, Sirius XM's churn rate actually improved over the past year, from 1.7% to 1.6%. So, the decline can likely be attributed to dampened new customer onboarding.
Image source: Getty Images.
Turnaround plans
Both companies have recently undertaken some new plans to reinvigorate growth, although Sirius XM's is more involved, obviously.
Recently, Sirius XM streamlined its ambitions to focus harder on its core in-vehicle audience, rather than grow its app outside the vehicle, as those non-auto subscribers proved less reliable.
The company is also refocusing on its premium customers, adding more content and value to the core subscription, while also implementing a price increase in March. Encouragingly, management said it had actually seen reduced churn even as prices rose, due to the increased value provided.
Sirius XM is also looking to attract lower-income customers through a new low-priced but ad-supported tier, with stripped-down channel options. That's just being rolled out, but it could also be a catalyst for growth, in the same way a low-priced, ad-supported tier has been a boon for Netflix.
Complementing this are Sirius XM's new deals with automakers for 2026 models, as well as better targeting capabilities for used vehicle buyers. In prior years, Sirius XM didn't have as much access to used vehicle sales -- and, therefore, to the ability to reach those new owners. So, that newer capability should enhance marketing coverage in 2026 and protect the company somewhat in case of a downturn in new auto sales.
Despite the declines last quarter, Sirius XM reiterated its 2025 targets for revenue, adjusted EBITDA, and free cash flow. Management saw subscriber losses moderating compared with the year-ago quarter, which indicated its turnaround efforts may be taking hold.
For VeriSign's turnaround strategy to boost domain names, it has recently been working with retail registrars to enhance customer acquisition. Over the past few years, registrars had pulled back on advertising, instead streamlining costs and increasing prices. But VeriSign is now working with its downstream partners on more marketing programs in order to spur domain name growth. The plan appears to be working, as VeriSign increased its 2025 guidance as a result.
A huge gap in valuation
VeriSign's new contract, the recent guidance raise, and the initiation of its first-ever dividend have catapulted the stock this year. It's up 33.3% for 2025. Meanwhile, Sirius XM, after enduring a difficult 2024, is down another 2.2% for 2025.
VRSN Year to Date Total Returns (Daily) data by YCharts.
That has obviously led to a wide discrepancy in valuation. VeriSign is coming in at 31 times this year's earnings estimates, with a forward dividend yield of 1.1%, whereas Sirius XM trades at just 7.6 times this year's earnings estimates, with a dividend yield of 5%.
While Sirius XM seems like the bigger bargain, investors should also be aware that it has a higher debt load of about $10.5 billion, or 3.8 times adjusted EBITDA. With that high a debt load and its business still showing revenue declines, that's a risky combination.
The verdict
The decision between these two Buffett stocks depends on one's risk appetite, and one's belief as to whether or not Sirius XM's turnaround plan will work.
I'm more interested in Sirius XM's potential upside due to its bargain basement valuation, and the appearance that things may be getting "less bad" as interest rates come down. Actually, even if Sirius XM just manages to maintain its current profits, the stock could do well, given its 14% earnings yield. VeriSign is performing quite well, but its valuation appears to reflect that strength today. So, there's much more upside potential in the beaten-down Sirius XM.
However, Sirius XM also has much higher risk, as its turnaround efforts may not work. So even though it would be my personal choice today, I'd also be careful with the allocation's weighting in a diversified portfolio, in case the worst-case scenario emerges.
