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Sonos IPO Priced Lower, but Does That Make It a Buy?
It’s not too difficult to remember the days when consumers bought music on LPs, cassette tapes and compact discs. Streaming music services have changed all of that in a hurry as streaming services have revolutionized the delivery of music on demand. Industry pioneer Spotify went public earlier this in an interesting and non-conventional direct public offering and shares have performed well, up 36% in 2018. Apple’s iTunes, Amazon and Pandora all also offer music fans inexpensive instant access to the content they desire.
As consumers switch to streaming internet sources for music, they also need speakers to play that music on and Sonos (SONO), founded in 2002, has become the most popular maker of speaker systems with a product line that ranges from compact portable units to sophisticated home systems capable of customizing music across multiple rooms with innovative network connectivity.
In its highly anticipated initial public offering on Thursday, Sonos’ underwriters priced its shares at $15, valuing the company at $1.5 billion. In the first few hours of trading, the shares rallied roughly 20% on the open market, trading around $18.
Though this would seem on the surface to be a successful IPO, the total market cap is about half of what was expected earlier this year. The issue seems to be that Sonos’ continued success is dependent on a deal with Amazon to make it’s products compatible with the Alexa voice recognition software – so that users can call up their music choices verbally – and a similar deal expected later in 2018 to incorporate the same functionality with Google’s Assistant.
Official financial data from Sonos’ SEC filing documents reveal revenues of $992 million in 2017 and a net loss of $14 million, improvements from 2016 when they lost $36 million on $901 million in sales. For the first half of the 2018 fiscal year, Sonos produced a net profit of $13 million.
Financial data on newly traded companies is typically scant, so it will take a few quarters for analysts to get a clear picture of expected growth in the company but at 16 years-old, Sonus is actually a fairly mature company and the recent trends seem to portend a move toward consistent profitability.
The big issue facing investors is the predictability of continued collaboration with Amazon, Google and other like them in the future. With a highly-regarded product line and loyal customers – buyers of their products tend to become repeat customers – Sonos appears to be on the way to sustained profitability.
On the other hand, the fact that they sell only hardware products probably limits potential margin growth compared to companies who sell digital and downloadable products and Sonos’ reliance on partnerships increases the chances they could be marginalized by much bigger companies who could choose to enter the physical speaker market themselves and cut into Sonos’ market share.
If they stay on their current trajectory, Sonos seems like a solid investment opportunity, but investors should probably not expect the type of rapid revenue and earnings growth of other recent technology offerings.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Spotify, Apple, Amazon, Sonos and Google
For Immediate Release
Chicago, IL – August 3, 2018 – Today, Zacks Investment Ideas feature highlights Features: Spotify (SPOT - Free Report) , Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , Sonos SONO and Google (GOOG - Free Report) .
Sonos IPO Priced Lower, but Does That Make It a Buy?
It’s not too difficult to remember the days when consumers bought music on LPs, cassette tapes and compact discs. Streaming music services have changed all of that in a hurry as streaming services have revolutionized the delivery of music on demand. Industry pioneer Spotify went public earlier this in an interesting and non-conventional direct public offering and shares have performed well, up 36% in 2018. Apple’s iTunes, Amazon and Pandora all also offer music fans inexpensive instant access to the content they desire.
As consumers switch to streaming internet sources for music, they also need speakers to play that music on and Sonos (SONO), founded in 2002, has become the most popular maker of speaker systems with a product line that ranges from compact portable units to sophisticated home systems capable of customizing music across multiple rooms with innovative network connectivity.
In its highly anticipated initial public offering on Thursday, Sonos’ underwriters priced its shares at $15, valuing the company at $1.5 billion. In the first few hours of trading, the shares rallied roughly 20% on the open market, trading around $18.
Though this would seem on the surface to be a successful IPO, the total market cap is about half of what was expected earlier this year. The issue seems to be that Sonos’ continued success is dependent on a deal with Amazon to make it’s products compatible with the Alexa voice recognition software – so that users can call up their music choices verbally – and a similar deal expected later in 2018 to incorporate the same functionality with Google’s Assistant.
Official financial data from Sonos’ SEC filing documents reveal revenues of $992 million in 2017 and a net loss of $14 million, improvements from 2016 when they lost $36 million on $901 million in sales. For the first half of the 2018 fiscal year, Sonos produced a net profit of $13 million.
Financial data on newly traded companies is typically scant, so it will take a few quarters for analysts to get a clear picture of expected growth in the company but at 16 years-old, Sonus is actually a fairly mature company and the recent trends seem to portend a move toward consistent profitability.
The big issue facing investors is the predictability of continued collaboration with Amazon, Google and other like them in the future. With a highly-regarded product line and loyal customers – buyers of their products tend to become repeat customers – Sonos appears to be on the way to sustained profitability.
On the other hand, the fact that they sell only hardware products probably limits potential margin growth compared to companies who sell digital and downloadable products and Sonos’ reliance on partnerships increases the chances they could be marginalized by much bigger companies who could choose to enter the physical speaker market themselves and cut into Sonos’ market share.
If they stay on their current trajectory, Sonos seems like a solid investment opportunity, but investors should probably not expect the type of rapid revenue and earnings growth of other recent technology offerings.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%. And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.