Better Buy: Sirius XM vs. Spotify
Sirius XM (NASDAQ: SIRI) and Spotify (NYSE: SPOT) have been competitors for years, but they have mostly stayed off each other's turf. Sirius XM's primary niche has been satellite radio in the car and only in the U.S. while Spotify is a global audio streaming business with much more listening outside of the car on mobile phones and other devices. But today the two companies are beginning to compete more directly, thanks to Sirius XM's 2019 acquisition of U.S. streaming player Pandora, its efforts to grow outside of the car, Spotify's efforts to grow in the car, and both companies' initiatives in podcasting. But which of these two consumer technology companies is the better buy today?
Sirius XM is a very profitable, high-margin business that generates significant amounts of cash, but its growth is slowing. Last quarter, Sirius XM grew its U.S. subscriber base by about 3% to almost 35 million, which is about 13% of the 265 million cars on U.S. roads. It's also about 28% of the 123 million cars that are enabled to receive the company's satellite signal. This "enabled fleet" should grow over the next decade because at least 80% of new cars built this year and beyond are expected to have a Sirius XM radio built-in. As older cars are scrapped and replaced by new cars, 80% of which will be enabled, the enabled fleet should slowly increase. That's why management expects the enabled fleet to increase from 123 million to over 220 million over the next decade. That gives the company an opportunity to slowly grow subscribers for a long time.
However, even this slow growth scenario is not guaranteed. One risk is that the company's contract with Howard Stern for new content ends in December of 2020 and Stern plans to retire from radio. His library content will still be on the service for at least another seven years beyond that, but whether that will be enough to retain Sirius XM's subscribers who listen primarily for Stern remains to be seen.
Source Fool.com
