Sirius XM’s Struggles: Can Warren Buffett’s Backing Spark a Comeback?
At the center of an intriguing turnaround narrative is Sirius XM Holdings. Despite its stock plummeting over 58% in 2024, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has continued to purchase its shares.
Currently, Berkshire holds about 33.2% of Sirius. Throughout 2024, Sirius faced significant challenges, including a loss of subscribers, falling revenue, and reduced profits. The company announced a necessary “refocusing” of its business in early December.
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Predicting Lower Revenue but Improved Cash Flow
In a press release from early December, Sirius provided a preliminary outlook for 2025, projecting lower revenue and adjusted EBITDA. However, they anticipate an increase in free cash flow.
Metrics |
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 has lowered its growth expectations and stressed a renewed focus on its “core” automotive customers, with an additional $200 million in planned cost reductions.
The company’s effort to reach smartphone-only subscribers has not gone as smoothly as expected. Consumers, now accustomed to existing streaming apps, may hesitate to switch to Sirius’ pricier offerings despite the unique content available.
Strategies for Revitalization
To retain trial customers and attract new ones, Sirius has outlined several steps. Previously, it offered a few comprehensive packages ranging from $11 to $22 per month. Now, the company has introduced new arrangements breaking down offerings into distinct categories—music-only for $8, news and talk for $5 each, and sports for $8.
Additionally, Sirius rolled out a free ad-supported tier in August, primarily for vehicles equipped with specific technology. While it currently won’t be available on the Sirius XM app, expanded access could grow its audience as modern vehicles enter the market.
Moreover, Sirius is enhancing its premium tier after investing in new technology. The updated Interactive Premium bundle will enable users to save songs to personalized playlists, merging traditional radio with tailor-made listening experiences powered by AI.
Image source: Getty Images.
Will These Changes Succeed?
Many of the new features were introduced in the last summer and fall before the December refocusing announcement, yet they are expected to continue rolling out.
However, their success is uncertain. There is a risk that subscribers might downgrading to cheaper options based on their preferences. Furthermore, an abundance of choices could overwhelm potential customers.
On a brighter note, the adjustments to pricing could be a strategic move to align with modern consumer preferences. The effectiveness of these changes will be clearer after Sirius’ upcoming earnings reports, with investors preparing for modest Q4 results expected on January 30.
Could Buffett Be Betting on a Sirius Comeback?
Sirius XM is currently valued at merely 7.5 times this year’s free cash flow estimates and 6.6 times next year’s guidance. While this seems attractive, Sirius also carries a significant debt burden, raising concerns about it becoming a value trap.
Investors must hinge their hopes on the company’s ability to innovate and return to profitable growth. The launch of the free ad-supported tier might be the catalyst needed for Sirius to regain momentum. A relevant comparison is Netflix (NASDAQ: NFLX), which successfully transitioned to an ad-supported model after many years as a premium service.
Netflix saw remarkable growth after unveiling its ad-supported tier, attracting 22 million subscribers in 2022 and reaching 70 million by Q3 2024. This shift contributed significantly to continued revenue increases and improved profit margins.
So, can Sirius replicate Netflix’s success? Initial forecasts for 2025 might not inspire confidence, yet analysts will be watching for insights on the performance of the new free ad-supported tier. Signs of success could imply better days ahead for Sirius.
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Billy Duberstein and/or his clients hold positions in Berkshire Hathaway and Netflix. The Motley Fool also holds positions in and recommends Berkshire Hathaway and Netflix. For more details, check our disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.