Hey SIRI: Why Does Berkshire Own 25% of SiriusXM? (Part 1)

Did Berkshire increase its SiriusXM stake by 50% in Q1 alone? Also, it's 6% of Baupost's portfolio.

TABLE OF CONTENTS:

1. SIRI and LSXMA Merger Explained

2. Quickly Getting You Up To Speed with SiriusXM

3. In-Car Listener Statistics

4. StreamingXM 

5. Future of Audio: User Demographics & Industry Trends 

6. Part 2 next week: SiriusXM Financial Analysis + Valuation

7. 📊 SIRI 3-Statement Model (download here)

Note: For the purposes of this analysis, I will be treating LSXM and SIRI as one and the same. As of this writing, their valuations are similar as well.

Several interesting developments about SiriusXM (SIRI 0.00%↑) caught my eye recently. Firstly, it would seem that Berkshire has just increased its stake in SIRI by a colossal 50-60% in Q1 alone. As the title alludes to, it’s also 6% of Baupost’s portfolio.

Secondly, its share price has cratered by 50% YTD, after its parent company Liberty Media Corp announced a complicated merger of SIRI with its equivalent tracking stock, Liberty SiriusXM Group (LSXMA 0.00%↑).

For those not in the know, Liberty Media is the brainchild of the legendary Cable Cowboy John Malone, whose exploits we’ve covered extensively in some of our old articles about Disney:

The idea behind the merger is to streamline the corporate structure between the tracking stock and the official ticker. For years, the tracking stock has traded at a significant discount to the vanilla flavor — the 50% YTD collapse of SIRI that you’re seeing in the chart above is mostly that discount collapsing. Any media industry analyst will tell you that nothing about SIRI’s fundamentals have changed in the past 6 months.

SiriusXM’s satellite radio business needs no introduction. It comes installed by default in nearly every car sold in the USA, and is pretty much the only relevant satellite radio service provider in the country. While many city folk consider Spotify to be SiriusXM’s biggest competitor, satellite radio is available even where there isn’t Internet connectivity and is the best option for many who regularly drive on rural highways, goes camping often or live in the boondocks.

For readers who aren’t familiar with SiriusXM’s larger-than-life presence amidst the US population, the Substack newsletter linked below provides a pretty decent overview of the radio channels available on the SiriusXM platform:

Like most big media companies, SiriusXM’s moat can be found in not just their sector incumbency and economies of scale, but also their exclusive anchor hosts. Unlike Joe Rogan’s recent exclusivity split with Spotify, you can only listen to them on SiriusXM if you care about their views. Nationwide sensation Howard Stern recently interviewed President Biden on The Howard Stern Show; other top hits like Conan O’ Brien, James Corden, and Andy Cone also make the list. They’re basically the Taylor Swift for older folk.

Even if you don’t care for these personalities, 70 million US downloads of just SIRI’s top 5 podcasts show that many people clearly do. SiriusXM is widely considered to be the top podcasting platform in the country — what Spotify strives to become in that space. Just give the Biden interview below a listen (where he talks about losing his son Beau) and you’ll immediately see where their appeal comes from:

Industry monitor MusicWatch published an article last year titled ‘Does Sirius Deserve More Respect?’, which points out how SXM Streaming has already caught up to Youtube Music in terms of no. of paying subscribers. While still trailing behind both Spotify and Apple Music in streaming, it also puts to rest concerns about SIRI being disrupted by streaming competitors. SiriusXM also maintains its bona fide monopoly in satellite radio with the older generation of music consumers, at 32M paying subscribers.

Those who are unfamiliar with SiriusXM might be unaware that it acquired Pandora in 2019, the nation’s largest online radio platform. Boasting an MAU of 45M and 10.5B ad-supported listening hours in FY23, Pandora is no slouch in the advertising business and pulls its own weight.

Following its share price collapse of -50% YTD, SIRI’s valuation sits at a staggeringly low 9x trailing PE. While the company’s best days of growth are probably behind it (simply by virtue of already having 1/3 of the US population as listeners), the company has coined 2024 as its “transformational year” to tap into new growth opportunities presented to it by the streaming revolution.

Some analysts are claiming that Berkshire is merely scooping up SIRI/LSXM as a merger arbitrage play. As someone who has done a deep-dive into their financial statements, I find myself disagreeing with this interpretation for one very simple reason — SIRI at its current valuation looks exactly like a Media version of Occidental Petroleum, at least from a risk:reward slash cash flow perspective. If you can’t wait for my explanation in next week’s SIRI Part 2, read my OXY article linked below to find out what I mean.

And let’s be fair, you don’t really need a lot of growth to justify fair value at single-digit PE multiples.

Disclaimer: The contents of this document are NOT meant to serve as investment advice. Read our full disclaimers below.

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SIRI and LSXMA Merger Explained

This section will provide a detailed explanation behind the shareholder logistics of the upcoming merger between the official SIRI ticker and the LSXMA tracking stock. The corporate exercise is expected to close in the 3rd quarter of 2024.

source: TIKR

SiriusXM is officially listed on the NASDAQ under the stock ticker SIRI. However, a quick glance at their ownership structure shows that Liberty Media Corp (LMC), the media conglomerate of legendary Cable Cowboy John Malone, owns 83.34% of their outstanding shares. We can also see that Berkshire owns 0.95% of SIRI — the screenshot below demonstrates how they increased their stake by a whopping 50-60% in Q1 alone: