If Sirius XM Holdings (SIRI -0.63%) and Spotify (SPOT -5.99%) were playing a concert, it wouldn't be easy to decide which one is the headliner and which one has to settle for being the opening act. The two music services draw tens of millions of premium subscribers apiece, but each company is singing in a different key.
Spotify is the fast-growing upstart, still soaking in that "new stock smell" since going public just five months ago. Sirius XM, by contrast, is the grizzled vet with nearly two decades of trading history. Sirius XM is growing substantially slower, but it's also the only one that's profitable. Spotify is running at an operating loss, and analysts don't see it turning the corner of profitability until 2020.
Image source: Spotify.
Turning up the volume
Sirius XM and Spotify appear to be at opposite ends of the growth spectrum, but you probably couldn't tell that just by eyeing each stock's performance. Spotify is trading just 4% higher off of its initial trade in early April. Sirius XM, on the other hand, is once again beating the market with a 32% return year to date.
Sirius XM shares have risen every year since 2008. Put another way, Sirius XM is working on its 10th consecutive year of positive gains.
Spotify reaches a wider audience, though, with 180 million monthly active users. A whopping 83 million of those listeners are premium subscribers. Sirius XM is at just 33.5 million subscribers, though folks are paying a lot more on average for satellite radio than Spotify's streaming service. Spotify is available in 65 different countries and territories, unlike Sirius XM, which is limited -- by both satellite reach and regulations -- to North America.
Spotify is growing at a hearty clip. Revenue rose 26% in its latest quarter as a 30% surge in subscribers and a 40% spike in premium subscribers was held back by a negative impact on currency moves. Average revenue per user is also clocking in slightly lower over the past year, but that's mostly because Spotify is growing faster in emerging regions, where it has to price its platform more competitively.
Sirius XM is at a more mature stage in its life cycle. Revenue growth slowed to 6% in its latest quarter, and even if we go with the adjusted growth rate of 8%, absent an accounting change, we're still talking about a company that's growing at less than a third of Spotify's top-line moves.
Both companies command market caps just north of $31 billion, but if we turn to enterprise value to account for Sirius XM's net debt relative to Spotify's cash-rich position, we find Sirius XM at $37.8 billion and Spotify at $30.2 billion.
Spotify may appear to have the higher ceiling since Sirius XM's appeal remains largely limited to U.S. auto drivers who spend enough time on the road to justify their premium subscriptions, but don't underestimate Sirius XM's ability to market other goods and services to its expanding user base. Sirius XM has invested in everything from vehicle telematics to one of Spotify's largest streaming music rivals. Spotify's model may seem to be the one with more upside on the surface, but it's a cutthroat market, and this summer, it reportedly lost its lead in the U.S. market. Following the combination of Sirius and XM in 2008, Sirius XM has a monopoly on satellite radio with the flexibility to continue dominating inside dashboards, offering automakers lucrative deals that no streaming service would date to match.
Spotify can still be a winner at this point, but Sirius XM is the better stock recommendation here. Sirius XM's consistent profitability, steady growth, and even a modest dividend make it stand out. It's also hard to ignore a stock that has cranked out 10 consecutive years of stock gains, making it one of the market's biggest winners since it bottomed out in early 2009. You can still enjoy Spotify as a solid opening act, but Sirius XM has earned the right to be the headliner.
