Investors looking for a way to invest in the massive music market don't have a ton of choices, but two of the most prominent are SiriusXM Holdings (SIRI +2.88%) and Spotify Technology (SPOT 2.40%).
SiriusXM and Spotify represent opposite poles in the music industry in some ways. SiriusXM is the satellite radio monopoly, launched at the beginning of the century, while Spotify transformed the industry with music streaming, giving users access to any song.
How do the two stocks stack up against each other today? Let's take a look to determine which is the better buy today.
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Business model: SiriusXM vs. Spotify
Both SiriusXM and Spotify rely on the subscription model, but they have different ways of doing it.
Sirius owns its namesake business as well as Pandora, the streaming service that was born out of the music genome product, which mapped songs so listeners could select an artist or song and hear similar music.
NASDAQ: SIRI
Key Data Points
SiriusXM relies in large part on the automobile industry. Its radios come pre-installed in most new vehicles sold in the U.S., and the car is still where most Americans listen to its content.
In addition to the music, Sirius also broadcasts sports, talk radio, weather, traffic, and news, and the company has gone deeper into podcasts, much like Spotify. Sirius signed Call Her Daddy host Alex Cooper to a three-year, $125 million deal, and it's been the longtime home of Howard Stern, though his drawing power has ebbed over the years.
Spotify also made a splash with podcasting, signing big stars like Joe Rogan and Bill Simmons, but its biggest source of differentiation from SiriusXM is its reliance on the app rather than car dashboards. That's made Spotify mobile, and thanks to auto infotainment systems like Carplay, easy to use in cars as well.
Spotify also operates with a freemium model. Most of its listeners use the free, ad-supported tier, though its premium, ad-free tier has been growing quickly, supporting the growth of the overall business.
Financials: SiriusXM vs. Spotify
SiriusXM has long struggled to expand its customer base, and those challenges have continued in recent years.
In the first quarter, SiriusXM self-pay subscribers declined 330,000 to 33 million, while revenue was down 4% to $2.07 billion.
SiriusXM remains highly profitable thanks to its subscription model. In the first quarter, it generated an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 30%. On a generally accepted accounting principles (GAAP) basis, net income fell from $241 million to $204 million.
Spotify, on the other hand, is delivering solid growth with revenue jumping 15% to 4.19 billion euros. Total monthly active users rose 10% to 678 million with 268 million of those being premium subscribers. Net income rose from 197 million to 225 million euros, showing growth on both the top and bottom lines.
NYSE: SPOT
Key Data Points
Valuation: SiriusXM vs. Spotify
Finally, let's take a look at how both companies compare in valuation. Sirius, which has attracted the backing of Warren Buffett, now trades a forward P/E of just 8.
Spotify, on the other hand, trades at a forward P/E of around 80.
Spotify doesn't pay a dividend, while SiriusXM currently offers a dividend yield of 4.7%.
Which is the better buy?
Looking at the two side-by-side, Spotify is the clear winner here as it's emerged as the leader in music streaming, besting Apple, in addition to other competitors.
Spotify is also delivering solid growth on the top and bottom line, and has more runway to add new users and new products.
SiriusXM seems stuck and may never see significant growth again. Value or dividend investors may prefer Sirius, but Spotify is the better choice for most investors.
