Buy Sirius XM, Sell Pandora

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Folks have been writing off Sirius XM Radio (SIRI) for years. "It's too expensive," some will argue. "Why pay for radio?" others say. "Howard Stern is repulsive," your mother says -- even though she's never actually heard his show.

Well, just as cable and satellite television providers have weaned couch potatoes off their rabbit ears, Sirius XM has steadily boosted its audience to 21 million subscribers.

Sure, Pandora (P) is flashier, and the popular music-discovery site is growing faster than its peer: Last month it announced that it had crossed the meaty mark of 100 million registered users. There's an important asterisk in that statement: That is a cumulative figure. There are actually 36 million active monthly users.

Pandora's meatier base of active users is largely a collection of music-streaming freeloaders. Only a sliver of Pandora's listeners actually pay a premium for the commercial-free and fuller-featured version of the streaming service. Most of Sirius XM's accounts, on the other hand, are self-paying customers that relish coast-to-coast programming in their cars.

That's why, when it comes to investing, Sirius XM is the stock worth owning.

Do You Hear a Cash Register Ringing?

Pandora's recent IPO was an initial hit because the company is at the forefront of the dashboard convergence revolution. Smartphone owners can now seamlessly stream Pandora through their car speakers on many new models, giving them new audio alternatives beyond satellite and terrestrial radio for fresh programming.

Sirius XM critics that have labeled satellite radio as a transitory technology -- something to bridge the gap between terrestrial radio and server-served streams. But they are missing the point.

Internet radio is a bad business model, where unpopular advertising revenue isn't enough to cover music royalties, bandwidth tabs, and essential operating costs. Pandora's still losing a ton of money, and that's not going to change in the near term.

Sirius XM has been profitable through most of the past year. Some may argue that Sirius XM isn't exactly cheap trading for 27 times next year's projected profitability, but at least it's in the black and moving in the right direction.

Pandora's a Pricey Ticket

I don't think Pandora is doomed. It's just expensive, even now that it has fallen well below its earlier $16 IPO price. It will take some time for advertisers to pay more in the pursuit of reaching streaming audiences, and that's the one thing keeping this scalable model back from profitability.

Sirius XM is already there. It's widening its margins and things should improve there when Sirius XM finally initiates a rate hike early next year.

I'll stick with Sirius XM.

See how other stocks stack up and which ones you should boot from your portfolio:

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool has a disclosure policy we take way seriously.


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22 Comments

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Scott

I love SiriusXM. Regular radio is 30% commercials now, and the sound quality is better than Pandora (to my ears anyway). I stream it from my iPad all day long, and listen to it in my car during my commute.

My new car has an iPod dock, and Pandora, but I still like the variety on Sirius. As for Howard Stern, if you don't like him then don't listen. It's not that difficult.

August 16 2012 at 1:18 PM Report abuse rate up rate down Reply
mrslicky2

god bless howard stern .he saved sirius and xm from going under.if you dont like him dont listen. there is still lots of great programming. regular radio blows, its is nothing but commercials

August 15 2011 at 6:54 AM Report abuse rate up rate down Reply
oharne

Anyone who has ever tried to get rid of the Sirius-XM service has undoubtedly been treated to the absolute worst customer sevice in ANY industry, much less the satellite radio industry! Horrific! If the next new car I buy comes with a Sirius-XM connection I will make it plain to the dealer that I will not touch the car without the "free three month" service being disconnected. This company STINKS and Howard Stern isn't the only reason for that! And I have a sheaf of documents to prove my point, just ask! I'd sooner invest in BP Oil than this turkey!

August 15 2011 at 2:14 AM Report abuse -1 rate up rate down Reply
niick1021

HOWARD STERN IS ALWAYS ON VACATION !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! SIRIUS IS NOT WORTH THE $$$$$$$$$$$$$$

August 15 2011 at 1:58 AM Report abuse -1 rate up rate down Reply
Paul

I love my sirius. lets me travel all over with great radio. mostly lithium,octane, u the joint, etc. As for Pandora, i stream it every night to sleep with, also use it on my phone while outdoors. BTW Pabdora is not like napster, the person who said that is ignorant, you dont download, you stream. Yeah Stern is repulsive, but hey i dont go to that channel. its like anything else, if you dont like it dont listen/look.

August 15 2011 at 12:21 AM Report abuse +1 rate up rate down Reply
jus4udud

The hell with Pandora, unless you pay for unlimited data on your phone, then its like, is this really worth it? No its not!!

August 14 2011 at 11:52 PM Report abuse +1 rate up rate down Reply
straveler222

what this article does not cover and should is that Pandora, like its predecessor Napster, freely dispenses virous's along with its third party music downloads. I work on computers and am increasingly finding this problem. It starts with a perfectly innocent visit to Pandora looking for music like the rest of the kids and the next thing you know your computer is done, you can not go any where or do any thing you want to, then it finally fills up that giant hard drive you bought and the tech tells you it is broken and you need a new computer. Re format from a boot disk removing all partitions and reload with a new operating system is the only way out and do not forget to flash the bios with a new order also because it also infects it.

August 14 2011 at 11:42 PM Report abuse +1 rate up rate down Reply
1 reply to straveler222's comment
Paul

Uh last i checked Pandora was a streaming service, you dont download anything. it is not at all like napster. you can search for artists songs etc, to add to your station. Have you ever listened to Pandora, or are familiar with it. I dont think so. I have used it for years.

August 15 2011 at 12:23 AM Report abuse -1 rate up rate down Reply
savemycountry911

XM charges WAY too much. $500 every three years for one car.

August 14 2011 at 10:12 PM Report abuse -2 rate up rate down Reply
worleyc62

serius /xm are loosing subscribers in droves the merger destroyed xm and the service is terible took me six months to cancel a broken radio and they still want me to reactivate it they are lucky I kept the one subscription if they cancel more music programing I am gone

August 14 2011 at 9:30 PM Report abuse +1 rate up rate down Reply
txryans

ugh!!

August 14 2011 at 4:49 PM Report abuse rate up rate down Reply