Is Warren Buffett the new king of all media? Sirius XM Holdings (SIRI 6.23%) is growing into a significant position for Berkshire Hathaway (BRK.A -0.56%) (BRK.B -0.45%). The Oracle of Omaha already owned roughly a third of the satellite radio operator's shares heading into 2025, but his company purchased another $54 million of Sirius XM in early February.

Berkshire Hathaway now owns more than 35.4% of Sirius XM's total shares outstanding. I followed Buffett's lead in buying into it during the fall of last year.

It's true that Sirius XM has been one of the worst performers on the Berkshire Hathaway scorecard over the past year. The media giant has surrendered more than half of its value since the start of last year. If the greatest investor of our time is adding to his position on the way down, I wouldn't have a problem adding to my position on the dip.

Playing the next track

Sirius XM itself has been a Berkshire Hathaway position only since early last year, but Buffett has had some skin in the satellite radio game since 2016. Berkshire began buying into the Sirius XM tracking shares controlled by majority shareholder John Malone nine years ago. The tracking shares historically traded at a deep discount to the country's lone satellite radio provider. It was a smart way for Buffett to get more bang for his buck.

Two interesting things happened last year. The first bullish event is that he started buying Sirius XM common stock despite already having a sizable position through discounted tracking shares. If this was an arbitrage play, couldn't he have just shorted Sirius XM instead?

The second bullish event happened after the tracking shares were converted into the common stock this past summer. Buffett could have just cashed out with the discount on the tracking shares realized, but he went the other way. As the now unified Sirius XM began to slide after the conversion, Berkshire added to its position in October. And in December. And more recently in late January and early February.

At a time when Berkshire Hathaway is trimming some of his positions, Buffett seems perfectly fine with owning more than a third of Sirius XM. More than a dozen years ago, this was a speculative penny stock -- a meme stock before that was a thing -- but now it seems to check off a lot of the boxes that value and income investors crave.

• Sirius XM is trading for less than eight times forward earnings, a rare single-digit multiple for a consumer stock in the current market environment.
• The shares currently pack a beefy 4.5% yield. The company has boosted its payout every year since initiating a distribution policy in 2016.
• Despite a lack of subscriber and revenue growth in recent years, this out-of-this-world broadcaster has been able to top $1 billion in annual free cash flow on a consistent basis.

Image source: The Motley Fool.

Picking up the tempo

A well-known premium consumer brand with 33 million subscribers wouldn't be trading so cheaply in today's market if it was perfect. Sirius XM is far from perfect.

Subscriber growth has been gradually decreasing as car sales are slowing and younger drivers favor connected cars that can play their streaming music, podcasts, and audiobooks from their dashboard stereo systems. This is a problem, since the namesake satellite radio platform that accounts for 75% of revenue leans on subscription revenue for 93% of its business.

After eight consecutive years of organic single-digit revenue growth, the company's top line declined by less than 1% in 2023. Revenue dipped 3% last year, and guidance calls for a 2% to 2.5% step down in 2025. Its best-known exclusive show host, Howard Stern, has been on the Sirius XM airwaves for 19 years, but there's a good chance he steps down at the end of this year.

Like most media stocks, Sirius XM is also highly leveraged. It has more than $10 billion in long-term debt, and its enterprise value is more than twice its market cap. Thankfully, the leverage has never gotten in the way of a company that has been consistently profitable since the merger between Sirius and XM was finalized in 2009.

The future could be bright. Folks are driving again as gasoline prices remain low and offices call employees back into work. Sirius XM has been loading up on new content to offset Stern's potential departure.

Let's close with what Sirius XM can do with its 10-figure annual free cash flow. Beyond paying down its debt and returning some of its money to shareholders in the form of generous dividends, the company has a voracious appetite for its own shares. Its weighted diluted share count has moved lower in all but one year over the past dozen years; the share count has been cut in half in that time.

Put another way, Berkshire Hathaway's 35.4% stake will likely continue to grow even if Buffett doesn't buy another share. You can do a lot worse than following him.