Loud And Clear: Sonos Boasts High Demand In Q4 Print

In its second quarter as a public company, Sonos Inc SONO has loudly asserted its right to compete. Its stock opened up 25-percent higher Friday on record fourth-quarter earnings.

What Happened

Sonos reported $273 million in revenue on 27-percent year-over-year growth; 343-percent growth in earnings before interest, tax depreciation and amortization; and near-break-even net income.

The wins were driven by double-digit growth in household penetration and product sales, partly supported by the launch of Sonos Beam, which surged to No. 1 in the soundbar market.

Why It’s Important

The wins will go a long way for the market newbie, which has so far failed to capture the hearts of Street analysts.

While none issued upgrades following the quarterly report, some expressed incremental bullishness. 

“Early upside from the Beam is an encouraging indicator of new household penetration and repeat purchase potential,” Morgan Stanley analyst Katy Huberty said in a note, forecasting near-term stock relief.

The analyst raised expectations for Sonos’ 2019 performance but awaits execution on holiday sales, accelerated product launches and the IKEA partnership before upgrading to Buy.

“A key question is whether a focused (and leaner) marketing strategy will continue to be effective when competitors ramp mass market holiday campaigns (notably Amazon),” Huberty said. “Management believes lower-priced, entry-level smart speakers raise market awareness over time for higher quality solutions from Sonos, but the company saw headwinds last year from elevated promotional activity.”

Jefferies noted similar optimism around demand and concerns tied to Amazon.com, Inc. AMZN’s potential poaching of market share. 

“We think competitive pressures are increasing and more clarity around future product releases are needed to become more constructive,” analyst Brent Thill. 

Raymond James, which asserted a bullish rating well ahead of the quarterly report, predicted continued leverage from “structural” properties like direct-to-consumer channels.

Although cutting its price target for lower multiples in the soundbar group, the sell-side firm projects EBITDA growth on solid revenue improvements and gross margin stability.

What’s Next

Sonos guided for 10-12-percent revenue growth in 2019 with adjusted EBITDA growth between 20 and 27 percent. The company expects Alphabet Inc GOOG GOOGL's Google Assistant to join its platform next year, and it targets growth through a Sonos Amp launch and IKEA partnership.

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Photo courtesy of Sonos.