Sonos (SONO) is trading ~17% lower premarket after the company failed to impress investors with its first quarterly report since going public last month.
Third quarter results were in-line with the company's guidance given in the IPO prospectus (an adjusted S-1 filing on July 23) and guidance for fiscal 2018 was in-line with estimates.
Sonos reported a GAAP net loss of $27 million (versus $27-29 million guidance). Revenue fell 7% to $208.4 million (versus $206.4-208.4 million guidance) despite unit growth of 11% to 886,514.
The company faced a tough comparison from the launch of the $699 (U.S. MSRP) PLAYBASE in the third quarter of last year. Meanwhile, product unit growth in the third quarter was driven by a 25% increase in wireless speaker products sold, and primarily by the $199 Sonos One, which launched in 1Q18.
So, revenue fell due to the product mix. The company noted that it is focused on annual results due to the lumpy nature of seasonality and product launches in its IPO prospectus.
The company launched the Sonos Beam early in the fourth quarter, a three-in-one speaker: it plays home theater content from a television, streams content from more than 100 partners and allows voice control thanks to Amazon's Alexa voice assistant.
Although it's still early in Beam's life, management said media, retailer and customer feedback are in-line with their expectations thus far. Clearly, investors would've preferred to hear the Beam was exceeding expectations, but management did say it was feeling really good about the company's newest product.
A bright spot was the company's direct-to-consumer (DTC) channel, which grew 20% Y/Y and represents a 12% sales mix year-to-date with margins 10 points higher than the retail channel.
Adding to disappointment from investors was in-line guidance for fiscal 2018. The company forecasted adjusted EBITDA of $59-62 million (+8%) and revenue of $1.109-1.114 billion (+12%).
Management also offered a longer term outlook. The company is 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. The company added: "We may not achieve these targets every fiscal year, but it is our long-term goal to do so."
With a market cap of ~$1.8 billion, the stock trades at ~1.6x sales. Technology hardware companies whose growth sputtered out like fads: Fitbit (FIT) and GoPro (GPRO) trade at less than 1x sales. However, hardware makers that have sustained growth, like Logitech (LOGI) and Garmin (GRMN) trade at 2.7x and 3.8x sales, respectively.