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Why Pandora Missed a Beat as SiriusXM Surged

Stocks in this article: SIRI P AAPL

NEW YORK ( TheStreet) -- Shares in Pandora (P) are poised for a 20%-plus 2012 loss after the popular internet radio service cut its full-year earnings late on Monday. In contrast, satellite radio giant SiriusXM (SIRI) is on track for a 50%-plus year-to-date gain.

At first glance, the divergent earnings and stock performance of Pandora and SiriusXM indicates satellite radio is winning out competitively to streaming radio, which can be accessed on desktops and by way of mobile devices. A closer look indicates Pandora and SiriusXM are far from direct competitors, and that the outperformance of the satellite radio giant has little to do with its technology.

SiriusXM's success hinges on strong performance in the new and used auto market and a realization that the company's nationwide news, talk and sports content are hard to replace, even if competition mounts among streaming music services.

Players like Pandora and Spotify are fighting for market share, meanwhile recent reports indicate Apple (AAPL) may soon launch a streaming music service. Still, that competition has done little to dent SiriusXM's a post-crisis stock run, which is continuing in 2012.

As Pandora shows signs of struggle by way of reduced earnings guidance and a revenue picture that's clouded by content costs, SiriusXM's nationwide non-music programming gives the company a moated value proposition to consumers that's increasingly playing out in automobile. The earnings contrast between the competing satellite and streaming services indicates they may, in fact, be far from direct competitors.

On Monday at the UBS Global Media Conference, SiriusXM chief financial officer David Frear made highlighted that the company's improving financial picture hinges on how its non-music offerings are driving subscription growth, primarily in new and used automobiles. Meanwhile, the company's moat around auto subscribers is growing, as car makers continue to post record sales figures.

"You don't have to pay for an 80's channel," said Frear at the UBS conference, of the value proposition SiriusXM offers outside of satellite music streams. The CFO added its non-music content like Howard Stern, nationwide sports play-by-play and specialized content like CNBC and Bloomberg radio that are driving the company's paid subscriptions.

Strength in the auto market, meanwhile, gives the company confidence in its financial picture. At the Monday confidence, Frear affirmed SiriusXM's full-year 2012 guidance and detailed to investors how the company expects each new dollar in revenue to contribute roughly 70% to earnings before interest, taxes, depreciation and amortization EBITDA in coming quarters.

Frear said SiriusXM expects 40% EBITDA margins when the business matures and spent a significant part of the company's presentation talking about how the company could use growing cash flow for acquisitions or, in the absence of a compelling deal, stock buybacks.

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