Sonos: Why Its First Public Quarter Doesn’t Sound Right

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When Sonos Inc. (NASDAQ: SONO) released its fiscal third-quarter financial results after the markets closed on Monday, the company said that it had a net loss of $0.45 per share on $208.40 million in revenue. That compares with consensus estimates that called for a net loss of $0.22 per share and revenue $207.96 million. The same period of last year reportedly had a $0.26 per share net loss and $223.08 million in revenue.

During the quarter, the company sold 886,514 products, representing 11.4% growth year over year. Despite the double-digit percentage increase in products sold, revenue declined 6.6% from last year. The company explained that this dynamic between year-over-year product unit growth and year-over-year revenue decline can be caused by its new product launches and/or product mix.

In terms of its segments, the company reported as follows:

  • Wireless speaker sales increased 1.2% year over year to $93.87 million.
  • Home theatre speaker sales decreased 20.5% to $66.73 million.
  • Components sales decreased 4.3% to $42.28 million.
  • Other revenues increased over 150% to $5.52 million.

Looking ahead to the 2018 fiscal full year, the company expects to see revenue between $1.109 billion and $1.114 billion and adjusted EBITDA of $59 million to $62 million. Consensus estimates call for a net loss of $0.19 per share and $1.11 billion in revenue for the year.

In a letter to the shareholders, CEO Patrick Spence commented:

We have grown our revenue for 12 consecutive years and scaled to nearly $1 billion in annual revenue with only approximately $110 million of primary capital raised since inception (pre-IPO). We’ve done this by being long-term focused and responsible in how we invest. Given the nature of our business and the impact of seasonality and new product launches, we measure our financial progress on an annual basis, not a quarterly basis. We are focused on delivering a compound annual revenue growth rate of at least 10% and growing adjusted EBITDA at a compound annual growth rate of at least 20% over the coming years. We may not achieve these targets every fiscal year, but it is our long-term goal to do so.

Shares of Sonos closed Monday up about 13% at $21.24, with a consensus analyst price target of $22.83 and a post-IPO trading range of $15.51 to $23.60. Following the announcement, the stock was down 17% at $17.69 in early trading indications Tuesday.