The failure by Sirius XM Holdings Inc. (NASDAQ:SIRI) to reach the expected height of growth hasn’t taken away Warren Buffett’s trust and confidence in the company. The stepping in of the investor has encouraged a lot of people to invest in the company and its management looks at this move as some sort of validation.
Warren Buffett is arguably one of the world’s top investors and he has a number of reasons for making this timely move. Firstly, the investor realized the benefits that came with investing in a large company that generates much in terms of cash. Sirius XM is believed to have been under a conservative form of management over the years. In 2015, it recorded $1.32 billion which was in the form of free cash flow.
Secondly, the investor thought of the company as a steady one in terms of profit generation as well as growth. In last five years, Sirius XM saw its revenue grow to between 9% and 13%.Buffett is a careful businessman who knows the need for investing in steady as well as profitable businesses. A close scrutiny at the company shows it as both a steady one and a profitable one too currently. Its net income is fast growing and even said to beat its revenue growth.
Thirdly, Buffett openly spoke of his love for big moats. Nine years ago, antitrust regulators may have been quick to support a combination of Sirius and XM but this is the bottom-line-when it is about a satellite radio, it has to be a monopoly. In the realm of audio entertainment, there will always be competitors and a big number for that matter. However, this is not a matter to sweep the company off its feet considering that it is undisputedly a successful premium radio.
One thing is for sure! Sirius XM can very easily get away with charging $15.99 every month to a very wide customer base. As a matter of fact there are some cheap alternatives cropping up but they don’t pose quite a threat considering that they are not equally attractive. There is great optimism that this company will go higher in the list of NASDAQ stock in years to come.