Best Stocks to Buy Right Now: Spotify vs. SiriusXM

long long time ago, SiriusXM (Siri -3.39%) He was the elder statesman of digital radio services. spotify (dot 2.86%) I played a hungry newborn. Over time, their roles changed. Spotify currently has a market capitalization of $50.6 billion and annual revenue of $13.3 billion. Sirius XM, in the opposite corner, weighs $17 billion and $9 billion by the same measure.

While Sirius XM’s star faded, Spotify’s fortunes soared. But past performance is no guarantee of future results, and the picture in the rearview mirror doesn’t tell the whole story.

So where do digital media pioneers go from here? Should investors pick stocks of Sirius XM, Spotify, or both? Or maybe I don’t have to choose both?

Let’s explore.

Battle of the Audio Giants

First, these companies have recently been moving in opposite directions. Spotify’s stock has posted a strong rally since hitting lows in late 2022, while Sirius XM’s charts show a downward trend amid a broader market recovery in 2023.

SPOT data from YCharts

So while Spotify’s stock is soaring, the satellite radio veteran’s stock is falling. But this isn’t a completely random walk down Wall Street. This chart line makes sense when considering the performance of both companies.

During the same period, Spotify’s annual revenue increased 16%. Sirus XM’s revenue is roughly flat. If we extend that period beyond five years, we see that Spotify continues to grow its top line over time, while Sirius XM’s growth relies primarily on buyouts. The 2019 acquisition of Pandora made a big difference in Sirius XM’s sales charts. Smaller deals like the Stitcher podcast app or Conan O’Brien’s podcast network were too small to move the financial needle for the company.

SPOT Revenue (TTM) data from YCharts

Show me your profits!

Spotify is winning this race so far. I prefer owning fast-growing services rather than stagnant revenue streams.

But what about profits? Isn’t Sirius much more profitable than Spotify?

Well, it used to be like that. But whether you look at net income or free cash flow, the profitability gap is closing quickly.

SPOT Normalized Diluted EPS (TTM) Data from YCharts

And the winner is Spotify

Spotify is not making any major changes to its business model or product portfolio. The existing plan is working well, generating impressive user growth and revenue gains along with strong cash gains.

It’s hard to complain about 602 million monthly active users (MAU), including 236 million premium plan subscribers. This is especially true when both numbers are growing at double-digit rates every year. Standard operating procedures for tracking audio content sources and executing ambitious marketing campaigns will likely work well for the foreseeable future.

Sirius XM wants to do the same, but that’s not enough. The company relies heavily on automobile sales, as new cars pre-installed with satellite radio systems serve as an important sales channel. However, the industry has faced many challenges since the start of the COVID-19 pandemic. And Spotify is encroaching on what’s left of this useful but clumsy growth market. Many car manufacturers these days include the Spotify app on their infotainment system dashboards, but it’s easy enough to connect your smartphone’s Spotify app to your speakers.

That’s why Sirius is signing content deals to build a groundbreaking portfolio of can’t-miss podcasts and curated music channels. It also revamped its smartphone app last year, aiming for a more intuitive interface with user-friendly recommendations.

But the company is grasping at straws. Looking at the financial trends and underlying business operations of Spotify and Sirius There really isn’t any. The company needs another Hail Mary effort similar to or better than the Pandora deal to remain competitive in a rapidly changing media market.

Spotify goes home with the trophy this time. If you’re looking for a solid investment idea in the digital audio space, I suggest taking Spotify’s premium share price and grabbing a few stubs. Because stock prices are rising for good reason.