Sirius XM Radio (SIRI) gained 5.9% today after announcing first-quarter earnings and guidance that topped expectations. Revenue jumped 12% to $897.4 million and net income rose 15% to $123.6 million, or $0.02 per share. Revenue was light of expectations and when you're looking at such a large share count, it's hard to miss a $0.02-per-share earnings target.  

What really got investors excited was a forecast of $3.7 billion in revenue for 2013, well above the $3.41 billion estimate from Wall Street.

Used cars driving growth
Sirius SM has always relied on free trials from new-car sales for growth, but it is now looking at the used-car market as an exciting opportunity. Nine thousand used-car dealers are now offering free trials for its service, which helped drive 12% subscriber growth. Overall, Sirius XM now has 24.4 million subscribers across the country.

Automakers are increasingly adding Internet connectivity for services like Pandora (P) and Spotify, which is one of the reasons Sirius XM is going after the used-car market. It's also ratcheting up services similar to Pandora, although Sirius XM is significantly more expensive.  

Looking over Sirius XM's shoulder
Sirius XM's growth is impressive but it isn't keeping pace with Pandora right now. Pandora passed 200 million registered users less than two years after passing the 100 million mark. The company also saw a 54% jump in revenue to $125.1 million in the most recent quarter, slowly catching up to Sirius XM's level.

As Internet connectivity gets better, it becomes imperative for Sirius XM to offer superior content if it's going to charge a premium price. It's the only place you can find Howard Stern, but when it comes to music, it's hard to argue that Pandora or Spotify don't offer a similar, or even superior, product.

Don't jump over the moon just yet
Before you get too excited about Sirius XM's earnings, remember that the stock is trading at 25 times 2013 estimates, a very steep price for a company only growing at 12%. Liberty Media's move to take control of Sirius XM has kept the stock moving higher over the past year, but eventually earnings will have to drive the stock. I'm not impressed enough with the company's growth to be a buyer at this price.

A deep dive into Sirius XM