In This Article:
Key Points
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Berkshire Hathaway is the largest shareholder of SiriusXM.
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The company is seeing declining subscribers and big competition from streaming music players.
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The stock has a ton of debt and looks very risky to buy today.
Warren Buffett doesn't make many mistakes when it comes to investing, as evidenced by his supreme long-term track record in public markets. He and the team at Berkshire Hathaway (NYSE: BRK.B) seem to have made a mistake by investing in SiriusXM (NASDAQ: SIRI) -- at least, so far. The automotive satellite radio provider is down over 60% in the last five years, while the broad market indices have soared.
Today, the stock trades at a price-to-earnings (P/E) ratio of 8 and a dividend yield of 5%. Does Berkshire Hathaway see something in SiriusXM that the rest of the market is missing? Let's dive in further and investigate this fallen internet stock and see if it is a buy for your portfolio today.
Declining revenue, competitive threats
SiriusXM made its money selling satellite radio subscriptions in conjunction with automotive purchases. Today, this business is facing multiple headwinds with the rise of Spotify, Apple Music, and YouTube taking share from satellite radio for talk and music. Its subscribers stood at 32.86 million last quarter, which is below its user count at the end of 2018.
Lower subscriber figures have led to declining revenue, with sales now off 4.4% from all-time highs last quarter. This is coming at a time when the streaming music services such as Spotify are growing like gangbusters, which are putting a world of hurt on SiriusXM's business. With the rise of Google and Apple Car Play, users can stream the same applications in vehicles that they use on their phones, which has disrupted SiriusXM's competitive edge.
It has tried to fight back with a stand-alone SiriusXM streaming application, acquiring rights to podcasts, and even acquiring Pandora Radio back in the day. It has not lived up to expectations, with this other segment seeing a 2% decline in revenue year over year last quarter. Management is guiding for $1.15 billion in free cash flow this year, but that is still well below all-time highs set a few years ago. If revenue keeps sliding, free cash flow will eventually disappear.
Perhaps it wasn't a Buffett investment?
Just because a stock is owned by Berkshire Hathaway does not mean it was a Warren Buffett investment. The company has two investors -- Todd Combs and Ted Weschler -- who manage billions of dollars of investments. One of these investors may be the purchaser of SiriusXM stock instead of Buffett, who at this point only dabbles in investments that can move the needle for the trillion-dollar market-cap stock.