Sirius XM (SIRI 0.07%) isn't often the center of attention, unlike some of its larger media peers, such as Netflix or Spotify.
But that's starting to change. The stock has dropped more than 40% from its highs (as of this writing) in the last 12 months, drawing interest from value hunters and long-term investors alike. And beneath the surface, there's more to the story than meets the eye.
So why is everyone talking about Sirius XM stock right now? Here's what investors need to know.
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Sirius XM operates a recurring revenue business model
Sirius XM operates a subscription-based satellite and streaming audio service. Its core business revolves around delivering a broad range of audio content, including music, sports, news, talk shows, and entertainment, to users across North America.
For a monthly fee -- depending on the plan -- subscribers gain access via factory-installed satellite radios in vehicles, the SiriusXM app, and smart speakers or other connected devices. Subscription revenue accounts for 76% of the company's total, making it the cornerstone of the business.
Sirius XM also generates revenue from advertising (20% of revenue), mainly from users who subscribe to the ad-supported content, primarily through Pandora and podcasting. The remaining 4% of revenue comes from licensing and other hardware sales.
In other words, Sirius XM is effectively a hybrid between legacy media and digital streaming, built around vehicle-based installations and habitual listening patterns.
Sirius XM has huge backing from smart investors
One reason the stock is making headlines is that Berkshire Hathaway owns 35.4% of Sirius XM -- a sizable bet, and not a recent one. Warren Buffett's team has been accumulating shares for years, suggesting long-term conviction.
While we can only speculate why Berkshire Hathaway has purchased such a massive stake in the company, there are at least two likely reasons.
First, Sirius XM's subscription business is sticky and recurring, with a loyal base of drivers who regularly tune in -- a strong foundation for cash generation, even amid modest subscriber losses.
And that brings us to the second point, which is Sirius XM's disciplined capital allocation framework. Historically, the media company has shown restraint in deploying excess capital, focusing on returning cash to shareholders through buybacks and dividends rather than on flashy acquisitions. In the last five years alone, it has repurchased $4 billion worth of stocks.
This mix of reliable cash flow and conservative capital use aligns well with Berkshire's investing philosophy.
A cheap stock, but not without risk
Sirius XM's recent poor stock performance has led to its attractive valuation. As of the time of writing, it has a price-to-sales (P/S) ratio of 1, down from its five-year high of 3. Comparatively, Spotify trades at a P/S ratio of 8.3 times.
The stock looks cheap, but there are real challenges:
- Sirius XM posted a net loss in 2024, a reversal from its history of profitability. While the loss was primarily due to one-time restructuring and impairment charges, it suggests that the company faces some challenges going forward.
- Revenue has declined from $9 billion in 2022 to $8.7 billion in 2024, signaling saturation in its core market.
- Paid subscribers are slipping -- down from 34.9 million in 2019 to 33.2 million in 2024.
While Sirius XM remains highly profitable on the cash flow level, having generated $1 billion in free cash flow in 2024, its declining revenue suggests that it is struggling to compete against younger peers like Spotify in expanding its reach.
Sirius XM is pinning hopes on its advertising and podcast business, including its acquisition of Pandora. But that turnaround remains a work in progress. Pandora remains far behind the category leaders, and competition in podcasting is fierce. Worse still, Panda's monthly active users have been declining over the last five years as well, down from 63.5 million to 43.3 million.
In other words, while Sirius XM still has a loyal base of subscribers, this cohort is contracting over the years, with no sign of a turnaround anytime soon.
What does it all mean?
Sirius XM is a paradox: It's not growing, but it's still throwing off tons of cash. And while its audio subscription business model looks dated, it has the backing of one of the most respected investors of our time.
Whether Sirius is a value trap or a misunderstood opportunity depends on investors' perspective. The company faces real risks, but if it can stabilize its subscriber base and revitalize Pandora, there could be meaningful upside from here.
Either way, it's one worth keeping on your radar.
