Is there more to Pandora's subpoena than meets the eye?

The wildly popular music-streaming website turned heads earlier this week when it modified its IPO filing to indicate that it was part of a federal grand jury investigation on information-sharing practices.

Pandora claims that it's not the specific target of the investigation, but this doesn't mean that it will be smooth sailing toward its Wall Street debut.

App security specialist Veracode dug into Pandora's code, concluding that the site is sharing user data it collects -- gender, age, and location -- with mobile advertisers. As many as five networks, including Google's (Nasdaq: GOOG) AdMob, are obtaining user and GPS data to ideally serve up the most pertinent and lucrative mobile ads.

Pandora obviously isn't the only one doing this. When you're running a largely free ad-supported platform, you're going to want to maximize the monetization potential of relevant advertising. However, we may still see a backlash coming from consumers who didn't realize how much of their personal information was being shared with sponsors.

This is ultimately a case of lousy timing for Pandora. The IPO prospectus reveals a dynamic company with 82 million registered users. It served up 3.9 billion hours of content last year! Revenue grew 150% last year, though losses continue.

A successful IPO would give Pandora the liquidity to expand even faster, along with broader brand exposure. Pandora is often singled out as the biggest threat to Sirius XM Radio (Nasdaq: SIRI), even though terrestrial heavies Clear Channel (OTC BB: CCMO.PK), CBS (NYSE: CBS), Entercom (NYSE: ETM), and Cumulus (Nasdaq: CMLS) all have smartphone apps.

Should Sirius XM shareholders be relishing Pandora's stumble? Not just yet. This is unlikely to derail the IPO. The bigger concern for Pandora -- and all app makers -- would be if smartphone users recoil after learning how much of their information is being doled out to advertisers. The reaction would justify the federal jury investigation that suggests that developers need to do a better job of informing the public.

There is clearly room for both Sirius XM and Pandora to succeed. Both companies haven't had a problem attracting listeners. Pandora collects more ad revenue and is growing substantially faster, but Sirius XM is the profitable one.

If Pandora's reputation takes a hit, Sirius XM may benefit in the near term but both companies are likely to be reaching even larger audiences in the long run.

Would you rather own Pandora or Sirius XM? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz is a Sirius subscriber. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.