Sweden’s Spotify is likely to go public in the coming months, with huge ramifications for Sirius XM Holdings Inc. (NASDAQ:SIRI), Pandora Media Inc (NYSE:P) and other radio and music players. It’d be easy to look at Spotify’s rise as a disaster for SIRI stock, but the truth is more complicated.

Since I last covered SIRI stock, shares are down by about 7%. I suggested on Oct. 18 that SIRI stock was “significantly overpriced”. But I’m warming up on it now. The dip in SIRI stock, along with a fiasco over at Pandora last week, has improved Sirius’ appeal nicely. Let’s drill into the upcoming Spotify listing for more clues on where SIRI stock will be going.

Why Spotify Is Listing Now

In a rather unusual development for a private tech company, Spotify apparently isn’t going public to raise money. It got flush with cash that last year, via convertible bonds with rather stringent terms. The agreement specified that if Spotify went public within a year, the debt would yield 5% and convert to equity at a 20% discount to the IPO price.

However, the kicker is that after a year (from March 2016 onward) the discount on the equity conversion increased by 2.5% every six months. Additionally, the debt’s interest rate gets bumped up 1% (to a maximum of 10%). Given that it’s now November 2017, Spotify is already into the penalty zone and the clock is ticking. It only gets worse the longer they stay private.

So, Spotify’s hand is forced. They have to go public as quickly as possible to avoid this convertible debt from turning into a millstone. And here’s where things get interesting for SIRI stock. Spotify last quoted on off-market trades at an $18 billion valuation. Sirius XM, by contrast, is currently worth $25 billion.

Spotify is limping to the public markets. There doesn’t appear to be much demand for a traditional IPO. Instead, the Swedish streaming platform may perform a direct listing, where they raise no money and sell no newly issued shares. Instead, they simply start trading existing shares to the public, allowing insiders to sell their private holdings directly to outside investors. This is virtually unprecedented and a glaring sign of weakness.

Will Sirius Look Good By Comparison?

Given that SIRI stock is worth almost $25 billion, and Spotify last quoted at $18 billion, things initially look good. Spotify may trade up after the IPO, given the large numbers of millennial investors who have been drawn to other tech IPOs such as Snap Inc (NYSE:SNAP), however the rally likely wouldn’t last. Just look at how Snap has performed post-IPO.

Ultimately, Wall Street wants profits. Sirius has those, while Spotify doesn’t. The most recent publicly reported data for Spotify indicates impressive revenue growth, but significant losses continue. According to music industry magazine Billboard, Spotify’s loss for the first half of 2017 has narrowed modestly since 2016, but is still in the 100-200 million euro ($115 million-$230 million) range. For comparison, Spotify lost 557 million euros for full-year 2016.

For 2017, Spotify is projecting growing revenues by 40%. That sounds great, and certainly leaves Sirius in the dust. However, in 2016, Spotify paid out nearly 85% of its revenues as royalties and distribution costs, primarily to record labels and artists. There has been modest improvement on this front in 2017, as Spotify renegotiated its license with the music division of Sony Corp (ADR) (NYSE:SNE). However, as Spotify’s gross margins are still only 22%, this is no cash cow.

Sirius, by contrast, pulls 60% gross margins. That’s a gigantic difference, driven by the fact that it pays much lower royalty rates per song than the on-demand streamers.

Pandora’s Lesson: Ad-Based Radio Is Dying

Pandora stock has dropped almost 40% this week to less than $4.50. This has certainly raised mixed emotions for those interested in SIRI stock. On the negative side, Sirius invested half a billion dollars in Pandora this summer. The value of that investment isn’t going up, given Pandora’s disastrous quarterly results.

That said, it’s important to examine why Pandora flopped. For the past quarter, their subscription revenues grew 50%, while advertising was up just 1% and ticketing dropped 16%. Of course, at this point, advertising is far more important than subscribers to Pandora, as they have just a million paying subs as of October. Even with just one million paying subs, however, subscription revenue is already up to a quarter of their overall pie. You can see the split starkly at Spotify as well, despite having a ton of free users, subscribers make up 90% of revenues.

This brings us back to SIRI stock. Traditional ad-driven radio is on its way out. The ad money is going to the internet. Since Sirius’ strongest traditional competitor has generally been AM/FM, this is the best possible sort of news for SIRI stock. Of course, they’ll have to deal with Spotify, Apple Inc. (NASDAQ:AAPL) and other such new-tech players getting added to the dashboard over time. But Sirius got to subscription early, and they now have a substantial amount of time with a first mover edge inside the auto.

Buy SIRI Stock Or Wait for Spotify?

Between the two platforms, investors will have to choose between two very different styles of business. SIRI stock represents a stable, profitable, and proven business model. Recent growth trends out of Sirius aren’t great. SIRI stock sold off on slower-than expected user growth recently. However, the business already works, and is returning cash to shareholders.

Spotify, on the other hand, is a classic no-profits growth startup. It is attracting new users at a frenetic clip, but it is doing so unprofitably. When they are forced to cough up 80 cents of every dollar to the music creators and their labels, it leaves only scraps for shareholders.

Ultimately, it could go either way. Investors have rewarded some only marginally profitable tech platforms, such as Netflix, Inc. (NASDAQ:NFLX) with huge valuations. On the other hand, companies like Snap and Twitter Inc (NYSE:TWTR) — with strong user bases but flimsy business models — have seen their share price implode.

Given that Spotify is listing directly, a huge sign of weakness, I’d rather own SIRI stock. If nothing else, Spotify’s current $18 billion valuation helps confirm the appeal of Sirius XM at $25 billion. As Pandora is showing, ad-based radio is on its last legs. SIRI stock is well-positioned to benefit.

At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.