Sirius XM Holdings Inc. (NASDAQ: SIRI) operates the only licensed satellite radio company. In 1997, the U.S. Federal Communications Commission granted satellite radio licenses to two competing satellite radio companies, Sirius Satellite Radio and XM Satellite Radio. Back then, satellite radio was a money pit with extremely high barriers to entry. XM and Sirius merged into one company, Sirius XM Holdings, in July 2008 with the approval from the FCC to become a legal monopoly in satellite radio with 18.5 million subscribers.
On Sept. 9, 2024, Sirius XM split off from Liberty Media and executed a 1-for-10 reverse stock split. The company implemented a 3.84% dividend and announced a $1.66 billion stock buyback. Here are 4 reasons to consider buying this monopoly.
1) Sirius XM is a Publicly Traded Legal Monopoly
To date, Sirius XM is the only FCC-licensed commercial satellite radio operator in the consumer discretionary sector. While it controls an estimated 60% market share of total internet radio broadcasting, it still faces competition from terrestrial radio leaders as well as streaming music and podcast services like iHeartMedia(NASDAQ: IHRT), Spotify Technology S.A. (NYSE: SPOT), Amazon Music own by Amazon.com Inc. (NASDAQ: AMZN), and Apple Music owned by Apple Inc. (NASDAQ: AAPL).
2) Sirius XM is Independent, Profitable and Launching an Ad-Support Tier
Sirius is free from the Liberty SiriusXM Group (NASDAQ: LSXMA) and now operates completely independently. This enables Sirius XM to focus on growth drivers with the influence of Liberty. The split provides many benefits, enhancing the float and improving trading dynamics. While Sirius XM has a growing list of competitors, they are the only satellite radio that comes pre-installed in new cars due to its partnership with OEMs and automakers like General Motors Inc. (NYSE: GM) and Ford Motor Co. (NYSE: F).
When customers buy these cars, they are treated to experience free satellite radio for a trial period with the option to continue on a subscription basis. The conversion rate is around 30% of the new car owners opting to join a subscription plan. Of the new subscribers, they tend to stay on for an average of four to five years based on its 1.5% churn rate in the second quarter of 2024.
To address churn, Sirius XM is adding an ad-supported tier, which has been a growth driver for streaming video services like Netflix Inc. (NASDAQ: NFLX) and Disney+ from The Walt Disney Co. (NYSE: DIS).
3) Warren Buffet Owns 32% of the Company
After Sirius XM split with Liberty, Warren Buffet added another 1.5 million shares or $42 million of SIRI stock, bringing the total ownership by Berkshire Hathaway Inc. (NYSE: BRK.A) above 32%, holding more than 110 million shares. The company's subscription plan assures steady monthly cash flow, monopoly status in satellite radio, a solid brand portfolio, which also includes Pandora, an expanding podcast network, and an attractive valuation are all factors that complement Buffet's investment thesis. Sirius is planning on rolling out and expanding its 360L service with over 10,000 stations.
4) SIRI Stock is Forming a Rounding Bottom Pattern
A rounding bottom forms when a stock drops from the cup lip line to a low and starts to curve back up, staging a rally back to the cup lip line.
SIRI stock fell from the $33.00 cup lip line to a low of $22.18 on Oct. 7, 2024. Shares have been slowly turning higher forming a rounding bottom as it continues to attempt a rally back to the cup lip line at $33.00. The daily anchored VWAP support is at $25.94. The daily RSI rose to the 61-band. Fibonacci (Fib) pullback support levels are at $26.34, $24.39, $22.18 and $20.19.
Sirius XM’s average consensus price target is $31.25, and its highest analyst price target sits at $49.00. It has 5 analysts' Buy ratings, 4 Hold and 4 Sell ratings. The stock trades at 8.5X forward earnings.
Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy SIRI at the Fib pullback support levels for entry and write covered calls to execute a wheel strategy for income in addition to the 3.84% annual dividend yield.
