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Sirius XM (SIRI +8%) found a stronger connection today with Berkshire Hathaway's (BRK.A / BRK.B) Warren Buffet, who purchased around $86.7 mln worth of the satellite radio and audio streaming company, adding to his existing stake. Mr. Buffett affirmed his 31.01% passive stake last month. The disclosed purchase has investors amped today, pushing the stock toward levels not seen since immediately following the completed split-off from Liberty Media (LSXMA) last month. At the time, SIRI announced that it would continue its recurring dividend and $1.166 bln repurchase program. SIRI also reiterated its FY24 revenue guidance of $8.75 bln.

While SIRI still trades near decade lows, a vote of confidence from Warren Buffet is an encouraging development. There are additional reasons why investors could change their tune surrounding SIRI.

• The separation from LSXMA cuts SIRI free. This provides several benefits, including equity, enhancing the float, and potentially improving trading dynamics. The split-off also allows for possible index inclusion down the road. Furthermore, without LSXMA, SIRI's structure becomes more simplistic, allowing it to focus on growth drivers, which it anticipates will result in greater free cash flow that it can reinvest into the business while continuing its dividend and paying down debt.
• In a world of connected smart devices supplying users with various music and audio streaming options, SIRI, which also owns Pandora, has found itself in a crowded market. However, its primary strength is its partnerships with numerous auto OEMs. Many vehicle purchases include complimentary Sirius XM for a specific period. However, once the free trial ends, only around a third of listeners continue their subscription. Furthermore, among those who do, they eventually leave after 4-5 years, evidenced by churn holding steady around 1.5% as of Q2.
• SIRI is looking to change this trend, recently launching a free access plan and an ad-supported plan for the car. SIRI only has these options in a few OEMs, translating to relatively tiny volumes. However, as SIRI rolls out 360L, a significantly enhanced version of its streaming service, giving customers access to 10,000 channels to additional vehicles, it anticipates building these volumes. Management referenced its ad-supported offering as one of the last terrains for addressable advertising in the car.

Warren Buffett's additional stake in SIRI has rekindled interest in the stock. Many roadblocks could create intense headwinds for SIRI, most of which stem from heightened competition. However, SIRI's established presence in automobiles, the improving monetization of Pandora as SIRI garners more advertisers to the platform, and the ongoing rollout of 360L makes the stock worth keeping on the radar as a compelling turnaround play.