Sirius XM continues to face pressure from the huge success of streaming platforms.
Despite falling revenue and subscribers, management sees free cash flow rising in the years ahead.
Sirius XM shares are very cheap, but the business isn’t positioned to achieve strong growth.
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Sirius XM (NASDAQ: SIRI) has been getting a lot of attention recently, primarily because it’s a top Warren Buffett stock. Berkshire Hathaway owns 37.1% of the outstanding shares in the satellite radio operator. Average investors who follow the Oracle of Omaha’s moves might be wondering if they should consider Sirius XM as well for their own portfolios.
It’s important to think about what the long-term investment thesis is, what factors matter most when looking at the business, and if there’s any upside. If you buy shares of Sirius XM right now, will you become a millionaire one day?
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Sirius XM has an advantage because it’s the only satellite radio operator in the U.S. As a result, there won’t be any direct rival encroaching on its turf. But that might be where the good news ends.
The rising penetration of the internet and smartphones has created a major headwind for the business. Advancements in these technologies have propelled popular streaming services that consumers can easily access from more parts of the country. There is naturally less of a dependence on satellite-based radio when internet connectivity is much faster and more reliable.
Sirius XM has been on the wrong side of technological change. During the second quarter, its revenue decreased year over year, and the Sirius XM service lost subscribers. Wall Street analysts believe the top line will fall by nearly 2% between 2024 and 2027, which shouldn’t drive investor excitement.
It’s hard to believe that the company’s growth trends are going to improve in the near future. A big chunk of Sirius XM’s customer acquisition comes from car purchases that come with free trial members, who then might stick around for a paid…
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