There have been a flurry of initial public offerings lately and Sonos is no exception. They have been in business for a while now, and decided to take their company public.
Many investors love IPOs and always want to get in early, but not all turn out to be smart investments for investors wallets. Where does Sonos fall?
In this post, I am going to tell you everything you need to know about Sonos and whether or not the stock is one you should be taking a position in.
Who Is Sonos?
Sonos (NASDAQ: SONO) is the maker of premium speakers and related devices for the home. When you purchase one of their speakers, you connect its hub to your router and it creates a wireless network to stream your music on.
After downloading the app, you can play music from your smartphone, computer or even streaming companies like Pandora through your Sonos speaker.
If you add a second speaker, you can put it anywhere in your house and listen to a different song than on the other speaker or you can group the speakers together to play the same song.
Additionally, you don’t need to buy a Sonos speaker. You can buy a device called Connect and hook your existing speakers to it, which in turn allows you to wirelessly stream music from them.
Finally, you can buy their soundbar and subwoofer and have a home theater set up for very little.
The company itself came into existence in 2002 and since 2014 when they debuted many of their models, their year over year growth has been solid:
- 2014: 75% growth
- 2015: 9% growth
- 2016: 7% growth
- 2017: 10% growth
Revenues have also risen nicely over this time as well, from $442 million in 2013 up to $993 million in 2017.
Finally, gross margins are strong, coming it at 45%, however the company has lost money the last couple of years due to research and development, per Sonos.
Should You Be Buying Sonos?
So the question becomes, should you buy this stock? Before you answer that, look back at the numbers above and you’ll see a company with a history of strong growth. And then when you take into account that 61% of people who buy one Sonos speaker come back and buy more, you know people love the product.
But the premium speaker market is vicious. Amazon and Google already are in this market and Apple is coming in soon. While the sound quality that Sonos speakers offer is far superior to the competition, many people don’t buy the speakers today for streaming music.
They buy them for the voice assistants like Alexa and Siri and for home automation duties. While new Sonos speakers offer this integration, they don’t own the voice assistants. So if Amazon or Google suddenly decide to stop working with Sonos, sales are going to take a major hit.
Staying with this theme, you have to look at price. Sonos charges $199 for a single speaker whereas Amazon is able to sell their speakers on sale for $50. Amazon doesn’t mind if it loses money on the speaker, but Sonos does.
As a result of the price gap and the fact that this company doesn’t have control over the voice assistants, I would not be a buyer of this stock. There is just too much uncertainty to make it a worthy investment.
I love Sonos speakers. I have 7 spread throughout my house. But I use them to stream music and sound quality is a top priority to me. But for most other people, sound quality is not the goal. So while I am willing to pay more for their speaker, the majority of people are not.
As a result, I see Sonos having a tough time consistently meeting quarterly numbers and because of this, the stock is going to have a bumpy ride.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.