Smart speaker player Sonos (SONO) went public this year. But in the few months that the stock has listed, it has had a rocky start. The company recently announced its first results since the IPO. The disappointing performance sent the stock tumbling more than 20% in the after-hours session. The stock still remains a Billion Dollar Unicorn.

Photo Credit: Nan Palmero/Flickr.com

Sonos’s Offerings

Santa Barbara-based Sonos was founded in 2002 by serial entrepreneurs Craig Shelburne, John MacFarlane, Thomas Cullen, and Trung Mai. It all began when John MacFarlane moved to Santa Barbara in 1990 to get his Ph.D. from the University of California-Santa Barbara. Those were the times when the Internet was being built. He saw the future of the Internet and together with his other three partners, he set up several Internet-based businesses over the next few years. When the four of them were searching for their next big venture, they stumbled upon the idea of building a speaker system that would do away with the need of storing physical disks and work without the complex web of wires. In 2002, digital music wasn’t such a big industry, especially since high speed internet and the online streaming services of today, such as Pandora and Spotify, weren’t born.

The four of them realized the potential of the wireless music system, and by 2003, they had built their first prototype. By the next year, they were ready to showcase their product at tech conferences and were attracting the industry’s attention.

In January of 2005, Sonos shipped its first product – the ZP100. While the product received significant positive reviews, its sales did not grow as rapidly. Recession was on its way, and Sonos was not on anyone’s priority buy-list. Sonos, however, managed to stay afloat during the recession.

In the next few years, it embraced the digital world. It launched its own free app for iPhone and Android users that allowed them to use their phones as the controller. It improved its speakers to launch PLAY:5, a smart, all-in-one speaker for a third of the cost of the ZP100. Earlier this year, it launched Sonos Beam, its first voice-enabled home theater speaker.

Since being founded, Sonos has continued to add features to its products while improving on the sound quality. It has built a network of more than 100 streaming content providers and partners that provide its customers with access to voice control, streaming music, internet radio, podcasts, and audiobook content. As of March this year, Sonos has sold more than 19 million products in 6.9 million households globally. Its customers spend nearly 70 hours per month listening to content on their speakers.

Sonos’s Financials

The rising customer base has driven higher revenues for the company. For fiscal 2017, Sonos saw revenues grow 10% to $992.5 million. For the six month period ended March 2018, revenues grew 18% to $655.7 million. During the same period, net income came in at $13.1 million and it reported an adjusted EBITDA of $50.5 million. For fiscal 2017, Sonos had reported a net loss of $14.2 million and adjusted EBITDA of $56 million.

Earlier this week, Sonos announced its third quarter results that sent the stock tumbling. Revenues for the quarter fell 6% over the year to $208.4 million, marginally ahead of the Street’s forecast of $208 million. Sonos attributed the decline in revenues to the decline in the Playbase audio streaming device. Playbase streaming service was launched in the third quarter last year and has failed to keep its listeners interested. The service saw revenues fall by $18 million over the year.

Sonos’s earnings were even more disappointing. For the quarter, Sonos reported $27 million in net losses, compared with $15 million losses reported a year ago. It ended the quarter with a loss of $0.45 per share, compared with the market’s forecast of a loss of $0.22 per share.

By segment, the wireless speakers revenues grew 1% to $93.9 million while the revenue from home theater speakers fell 20% to $66.7 million. Revenue from components also fell 4% over the year to $42.28 million. Other revenues grew from $2.2 million a year ago to $5.6 million for the quarter.

Sonos expects to end the current year with revenues of $1.109-$1.114 billion, compared with the Street’s forecast of $1.112 billion in revenues.

Sonos had bootstrapped for the first few years before raising its Series A in 2005. Since then, it has raised a total of $455 million in funding from investors including EquityZen, Index Ventures, Kohlberg Kravis Roberts & Co.(KKR & Co.), Redpoint, Elevation Partners, Greenspring Associates, and e.ventures. Its last round of funding was held in April last year when it raised an undisclosed amount for an undisclosed valuation. In July, Sonos listed on the Nasdaq under the ticker SONO. It raised $208.5 million by selling 13.9 million shares at $15 each at a valuation of $1.5 billion.

Besides traditional speaker players like Bose, Sonos faces much wider competition from tech giants like Apple, Amazon, and Google, all of which have their own version of smart speakers that are seamlessly connected to the user’s content. But these tech giants are also its partners as they provide invaluable content to Sonos. For now, Sonos is treating them with caution. It is integrating services like Google Assistant into its speakers while continuing to upgrade its speaker technology.

I would like to know from users about the features that they would like to see in Sonos speakers? Right now, Apple, Amazon, and Google do not provide the quality sound system that Sonos offers. But it could well be a matter of time. Meanwhile, what do you think Sonos should add to its offering so that you remain its loyal customer?

Its stock is trading at $14.36 with a market capitalization of $1.4 billion. It had touched a high of $23.60 soon after listing. It had fallen to its low of 13.53 earlier this week.