SiriusXM Holdings (SIRI -0.86%) has attracted some big backers over its history, including Liberty Media's John Malone and Berkshire Hathaway's Warren Buffett.

In some ways, it's easy to see why. SiriusXM has a monopoly in satellite radio, and its subscription business model could be highly profitable scale.

However, one or two elements of a competitive advantage aren't the same thing as a complete one, especially as there are clear weaknesses to SiriusXM's business.

First, SiriusXM has struggled to grow its subscriber base for years. Usage of the satellite radio network primarily takes place in the car, and as audio technology has improved, it's become easier to stream music and podcasts through smartphones and in-car infotainment systems.

As a result, SiriusXM has continued to underperform. Over the last year, the stock is down 20%, and it's down 59% over the last five years.

While SiriusXM may look like a value stock to some -- it offers an attractive dividend yield at 4.9% -- its growth has gone flat. In the first quarter, revenue declined 4% to $2.07 billion as subscribers declined by 303,000 to 33 million.

On the bottom line, SiriusXM also continues to shrink. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 3% to $629 million and generally accepted accounting principles (GAAP) earnings per share fell from $0.63 to $0.59.

Given what seems like an inexorable decline in SiriusXM as alternative options continue to get better, there's another stock that's worth buying instead, and it's arguably SiriusXM's biggest rival: Spotify (SPOT 2.93%).

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Spotify's bull run

While SiriusXM has struggled in recent years, Spotify shares have soared, up 500% over the last three years as its subscriber base has grown, its podcast strategy has paid off, and its business model has gained operating leverage.

In the first quarter, monthly active users jumped 10% to 678 million with premium subscribers, the vast majority of its business up 12% to 268 million.

Revenue from premium subscribers was up 16% to 3.77 billion euros, driving overall revenue up 15% to 4.19 billion euros, but what's been most impressive about Spotify's recent growth is the leverage it's gained. Operating income tripled to 503 million euros.

Spotify has become the preeminent global platform for audio streaming as it long ago left Pandora, SiriusXM, and other competitors in the dust, and it now appears to be following a similar path to Netflix as margins expand rapidly as revenue grows.

Spotify is also improving its ad product with new partnerships with demand-side platforms to automate ads, and introduced a new feature called Concerts Near You, helping users learn about nearby concerts based on their playlists.

Is Spotify a buy?

At a market cap of $134 billion, Spotify has almost certainly made more millionaires than SiriusXM, which has a market cap of $7.4 billion.

However, strong business growth alone doesn't make a stock a buy. You also have to consider valuation, and Spotify does trade at a premium with a trailing price-to-earnings ratio above 100. Its margins are expanding rapidly, and if it can continue to grow its premium subscriber base, its margins should continue to expand as well.

Netflix may offer the best comparison for Spotify as their business models are similar. Netflix's operating margin has expanded over the years as its subscriber base has grown, and it's now reached 31.7% in the first quarter. The company is targeting 33.3% in the second quarter, and for the full year, it sees an operating margin of 29%.

Spotify's operating margin, meanwhile, rose to 12% in the first quarter, meaning there should still be a lot of upside potential for the operating margin to expand.

Considering the company's steady growth, industry leadership, and profit potential, Spotify looks like an attractive buy. It's likely to continue taking market share from SiriusXM.