Home audio specialist Sonos has just filed its S-1 Registration Statement with the SEC on its road to the public markets. It had been previously reported that Sonos had filed a confidential version of the form earlier this year, and today's version is the public one. Based on this first version, which will likely be amended, the company is looking to raise $100 million and plans to list on the Nasdaq under the ticker symbol SONO.
Sonos has made a name for itself in the premium speaker and home audio markets, and also jumped into the smart speaker fray with the One last year and more recently the Beam, both of which rely on third-party virtual assistants for their smarts. Here's what prospective investors need to know.
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Financials and operating metrics
For starters, the company's sales have been steadily growing in recent years, albeit with some deceleration following a surge in revenue in 2014. Sonos attributed that spike to the introduction of its Playbar and Play:1 products, and said growth slowed in subsequent years due to relatively few product introductions (it only launched two products over the following three years).
Naturally, you can see a comparable trend with unit sales, and Sonos is also growing the number of households that it has a presence in. The number of households that buy Sonos products is important because consumers tend to buy more Sonos devices after buying their first, according to the filing.
In terms of profitability, Sonos has maintained a fairly steady gross margin of around 45% for several years, although it has posted net losses over that same time frame due to substantial increases in operating expenses, particularly research and development. Sonos was profitable in fiscal 2013 and fiscal 2014.
Navigating the rise of smart speakers
In no uncertain terms, smart speakers are taking over the home speaker market, with major tech giants all investing heavily in the product category. Amazon.com (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google, and Apple (NASDAQ: AAPL) are all players at this point, with Amazon and Google clearly leading the way with their Echo and Home products, respectively.
Sonos One, the company's only current smart speaker, and Beam, its smart soundbar, rely primarily on Amazon Alexa but will soon support Google Assistant later this year. There will be limited support for Apple Siri, mostly through AirPlay 2. It's this dependence on third-party virtual assistants for voice controls that creates arguably the biggest risk facing Sonos going forward, with references to it throughout Sonos' risk factors.
Sonos adds some more details about the partnership with Amazon:
The company also points out that these tech giants "have business objectives that may drive them to sell their speaker products at a significant discount to ours," underscoring the risk of being a pure play in the speaker market. Pure-play companies need to make profits on their core products, and Sonos is already posting red ink.
Sonos is sitting in a precarious competitive position relative to its larger rivals. Amazon and Google offer cheaper products with inferior sound quality, while Apple HomePod is priced higher with incredibly good sound quality. Sonos sits right in the middle, offering a balance between price and sound quality, but relies on its competitors for their technology. Sonos is also known for its multiroom audio technology, but the tech behemoths are catching up there, too.
Between price competition and reliance on third-party virtual assistants, Sonos looks a bit too risky.
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