Sonos (SONO 11.03, +0.05, +0.46%) has traded modestly higher during today’s
session after Morgan Stanley upgraded the stock to Overweight from Equal-Weight
this morning based on confidence about new products driving growth and margin
Sonos is a speaker company that invented multi-room wireless home audio.
Sentiment on the stock is quite poor. The company did an IPO in August of last year, selling nearly 14 mln shares at $15, below the $17-19 expected range.
After some initial strength, the stock got crushed following its first quarterly report as a public company. Revenue fell 7%, in-line with the company's preannouncement from its IPO prospectus. Gross margins also fell due to product mix.
In November, Sonos bounced back with a strong quarter and upside forecast for fiscal 2019 and the first quarter. Revenue grew nearly 28% due to strength of the Sonos Beam, which captured number one market share in the soundbar category after launching in July.
Fiscal 2018 was the thirteenth consecutive year of revenue growth for Sonos and achieved the highest growth since 2014. Product sales were up 29% to 5 mln units.
Sonos guided for fiscal 2019 EBITDA up 20-27% to $83-88 mln and revenue up 10-12% to $1.25-1.275 bln, both well above expectations.
However, though the stock gapped up on the strong report, it quickly got faded, and the stock made new lows within a couple weeks.
Fears over competition and margins as the smart speaker market booms appear to be the primary driver for weak sentiment. The Sonos Beam has Amazon's Alexa (AMZN) built in and the company plans to add Google Assistant (GOOG) integration this year as well.
Part of the Sonos ethos is to remain agnostic to different platforms, allowing compatibility with any music service or other hardware. Meanwhile, the company focuses on annual results, warning that quarterly results can be lumpy due to product timing.
Aside from the Beam, growth drivers for this year include a Sonos Amp, launching its full portfolio of premium speakers and audio components in Japan, and a partnership with Ikea. The company has also indicated that it will launch an outside the home product this year.
Morgan Stanley's upgrade comes ahead of tomorrow's lock-up expiration, when insiders will be allowed to sell their stock for the first time.
Sonos will report fiscal first quarter results on Wednesday, February 6. The company guided for first quarter EBITDA up 1-6% to $66-69 mln with revenue up 3-6% to $485-495 mln for the holiday quarter.
The company has a $1.1 bln market capitalization and trades at ~11x EV/EBITDA and ~0.8x sales for the current fiscal year. Some 15% of the 51 mln share float was recently sold short.
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