Warren Buffet's Potential Stock with Exponential Growth Predictions for 2025 and Beyond
Since the initial bull market's resurrection in late 2022, Berkshire Hathaway (BRK.A 1.95%), (BRK.B 1.88%) has regained its historical outperformance over the S&P 500. The multinational conglomerate, with numerous stocks in its portfolio, has significantly contributed to its stock growth, enticing numerous investors to mirror CEO Warren Buffett's investment strategy for Berkshire. Given its prosperity, it's recommendable to incorporate some of Buffett's preferred picks to your portfolio.
There's one Berkshire holding that hasn't performed exceptionally well as of late but may eventually validate Buffett's judgment starting in 2025. That's Sirius XM (SIRI 11.20%).
Witness the transformation of Sirius XM
Indeed, this is the Sirius XM that controls North America's only satellite radio service. Despite facing substantial indirect competition, the company has managed to stay alive and thriving beyond three decades. It also has Pandora, complementing its streaming radio business, which includes most of its satellite radio programming.
Recent quarterly reports from the company might have left some investors less than satisfied. Among other less-than-ideal results, the company reported a larger-than-expected loss per share of $8.74 due to a major impairment charge, and its revenue slipped slightly more than 4% to around $2.2 billion. The company's number of paid customers also dropped again.
While these results may appear disheartening, there's a silver lining.
In essence, Sirius XM is a business undergoing a series of transformations. The most significant change involves its relationship with Liberty Media (another Berkshire investment), as the company plans to merge Liberty SiriusXM's tracking stock into SiriusXM itself, concluding a complex arrangement that's distracted the company for nearly a year.
Once this complicating deal comes to a close, Sirius XM will have more time and resources to focus on vital transformations, such as enhancing its audio content offerings. According to CEO Jennifer Witz, Sirius XM is adding a variety of new talent to its roster of established on-air personalities like Howard Stern, Kevin Hart, and numerous sports commentators. Bill Belichick, Alex Cooper, and Nikki Haley are a few of the fresh faces appearing on Sirius XM and Pandora. Moreover, the company appears to understand that by identifying and segmenting its audience and tailoring its marketing approach to each group, its platform becomes more appealing to them.
In addition, in June, Sirius XM announced that Pandora would be the initial streaming radio platform to leverage Unified ID 2.0 technology. This technology enables the radio service to more effectively and accurately deliver advertising to its audio listeners, making Pandora a more appealing advertising platform for potential advertisers.
Furthermore, with the growth of ad-supported and ad-subsidized streaming video, Sirius XM Holdings is now offering a wider range of pricing options than ever before, including freemium tiers and customizable packages.
However, these developments have yet to bear fruit. Subscriber numbers and revenue continue to dip.
Don't lose hope – the best is yet to come
It has been a trying year for shareholders, with the stock having lost more than half of its value since the end of 2023 and hitting a 12-year low just last month. Some investors are increasingly concerned that the audio entertainment industry may be teetering on the brink of collapse. And while some worry may be justified, there's a reason Warren Buffett is staying patient with Berkshire Hathaway's 112.5 million share/$2.9 billion stake in Sirius XM Holdings.
The vast majority of this company's overhaul efforts have yet to fully materialize, and time is needed for consumers to discover the company's new offerings, realize the expanded pricing flexibility, and familiarize themselves with the evolving advertising landscape.
The upside is indeed coming, in multiple ways.
One of the significant improvements will stem from reduced spending on satellites. As the business transitions online and away from traditional satellite-delivered programming, Sirius XM expects its 2024 satellite capital expenditures of roughly $300 million to dwindle to zero by 2028. Non-satellite capital expenditures will not only remain stable but also decline modestly during the same time period.
Subscriber growth is on the horizon as well, spurred by initiatives already underway along with a new initiative that has yet to be revealed. For instance, recent deals reached with Ford Motor Company and Toyota Motor signify the start of a resurgence within the automobile industry.
Sirius XM is also hinting at the development of new ad-supported subscriptions and even more interactive programming in the near future. While the specifics of these are still unknown, the company is confident that these advancements will be sufficient to boost its current subscriber headcount from approximately 40.5 million currently to around 50 million in the future. At that level of listeners, Sirius XM anticipates generating annual free cash flow of approximately $1.8 billion, compared to last year's $1.2 billion.
Clearly, the growth doesn't have to stop there.
Despite the potential for a comeback, there's no guarantee it'll materialize as early as 2025... if it happens at all. There's a chance it won't, especially if most investors remain skeptical about the company's long-term rejuvenation strategies.
Buffett and his crew are still betting on Sirius, which suggests confidence. This is even more noteworthy given Berkshire's decision to offload heavyweights like Apple and Bank of America this year. It appears they've identified a positive outlook for Sirius XM. Maybe they're aware that all the mentioned developments may take some time to yield results. Meanwhile, they'll be collecting a substantial dividend; new investors will be flocking in with the forward-looking yield hovering at 4.1%.
Regardless of the scenario, it won't be a high-growth stock. But if it's good enough for Buffett, it might be a fit for your portfolio as well, particularly if you can grab it at a bargain price.
After analyzing Berkshire Hathaway's portfolio, investing in some of Warren Buffett's preferred picks, such as Sirius XM, could potentially yield profitable returns. Despite Sirius XM's recent financial challenges, Berkshire remains confident in its long-term rejuvenation strategies, highlighting the potential for significant growth in the future.
