Today, the quiet period expired for wireless home audio
product maker Sonos (SONO 19.29, -0.92, -4.54%), allowing firms involved with its IPO -- including
Goldman Sachs & Morgan Stanley -- to publish research and estimates for the
first time. While the initiations are mixed overall, the one that garnered the
most attention early this morning is Goldman Sachs, which is decisively bullish
on the stock. This had shares trading higher by 1.5% in pre-market trading.
Before reviewing the analysts' calls in more detail, we want to provide some more background on the company and its IPO.
SONO went public back on August 2, and investors were not overly enthusiastic about the deal out of the chute. Specifically, its 13.9 mln share IPO priced at $15, below the $17-$19 expected price range. It then opened for trading right at its IPO price, for no opening gain. Since then, shares have been on a bit of a wild ride, spiking up to $23.60 on its second day of trading, only to give most of those gains back within the following couple of weeks. However, SONO has been back in rally mode over the past week, perhaps in anticipation of some bullish initiations as its quiet period expired.
As for its business, SONO is an inventor of wireless multi-room home audio products, including wireless speakers, home theater speakers, and components, that address consumers’ evolving home audio needs. As of March 31, 2018, its customers had registered over 19 mln products in approximately 6.9 mln households globally.
SONO launched its first voice-enabled wireless speaker, Sonos One, in October 2017 and its first voice-enabled home theater speaker, Sonos Beam, in July 2018.
In addition to new product launches, it frequently introduces new features through software upgrades, providing its customers with enhanced functionality and improved sound in the home.
The company's network of partners provides its customers with access to voice control, streaming music, internet radio, podcasts, and audiobook content, enabling customers to control and listen to an expansive range of entertainment. Included among the approximately 100 streaming content providers servicing SONO’s platform are Apple Music, Pandora, Spotify, and TuneIn.
With regards to its business model, SONO generates revenue from the sale of its wireless speakers, home theater speakers, and component products, as new customers buy its products and existing customers continue to add products to their Sonos home sound systems. In fiscal 2017, existing customers accounted for approximately 38% of new product registrations.
Quiet Period Initiations
As noted above, today's initiations are mixed overall, with a few each landing on the bullish and more cautious side. In extended hours, though, Goldman Sachs' Buy initiation and $25 price target (+24% from Friday’s closing price) trumped the more cautious notes out this morning – simply put, Goldman's prominence gives it a little more weight.
RBC and Raymond James are also positive on SONO, both assigning an Outperform rating, with RBC also putting a $25 price target on the stock.
On the cautious side, the one that stands out the most is Morgan Stanley's Equal Weight and $20 price target, which was actually slightly below SONO's most recent close. Stifel also has a $20 target, with a Hold rating.
To conclude, when initiations are this mixed at the quiet period expiration, the reaction in the stock is typically not very favorable. Fortunately for SONO, Goldman took a strong bullish stance on the stock, but intraday trade action, which has moved the stock lower, may reflect a resumption of a more typical response by investors to a mixed set of initiations. With the quiet period expiration now in the rearview mirror, the next event for investors to keep on the radar is the company’s 3Q18 results, currently scheduled for September 10.
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