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Coronavirus: Sonos CEO sees $800 smart speaker sales soar during the pandemic

Brian Sozzi
·Editor-at-Large

Who would have thought a new $799 sound bar would be so in demand right now (see nasty U.S. recession) that its manufacturer can’t keep it in stock?

Welcome to Sonos’ (SONO) high-class problem with one of its three recent introductions dubbed the Arc as quarantined households invest in their living spaces.

“I can’t even believe where we are today and reporting the kind of quarter we are with what we were facing in March and April. We were looking at retail stores closing, which is a vast majority of sales,” Sonos CEO Patrick Spence told Yahoo Finance’s The First Trade.

While Sonos wasn’t immune to the effects of the pandemic — the smart speaker maker said Thursday that sales in its fiscal third quarter fell 4.2% from a year ago owning to and product shortages closed retail stores such as Best Buy and Ikea — it’s growth online suggests the company is navigating the economic uncertainty rather well.

A Sonos Move battery-powered Bluetooth smart speaker, taken on September 26, 2019. (Photo by Phil Barker/Future Publishing via Getty Images)
A Sonos Move battery-powered Bluetooth smart speaker, taken on September 26, 2019. (Photo by Phil Barker/Future Publishing via Getty Images)

“So really the whole story of the quarter is the adaptability and resilience of the team to shift direct-to-consumer. We shifted to a bit of a heavy focus on Sonos.com and were able to deliver 300% year-over-year growth to the direct channel. It was astounding, and a testament to the adaptability and the resiliency and a change in consumer behavior. What we saw is consumers willing to engage directly with us and willing to purchase $800 products sight unseen, sound unseen. I think we are seeing a change in customer behavior through this,” Spence added.

Here’s how Sonos fared compared to Wall Street estimates:

  • Net Sales: down 4.3% year-over-year to $249.3 million versus $235.5 million estimate

  • Gross Margin: 44%, down 110 basis points year-over-year; estimates were for 42.7%

  • Diluted Loss per Share: 52 cent loss versus estimates for a loss of 25 cents

  • 4Q Guidance:

    • Net Sales: $290 million to $305 million ($291.4 million estimate)

    • Adjusted EBITDA: $23 million to $33 million ($18.3 million estimate)

Sonos shares fell 18% Thursday as investors feared product shortages for the critical holiday season. Spence sought to ease those concerns after the stock’s 65% surge these past three months (before the earnings report reaction).

“We’ve been ramping up the supply in a big way. So we expect to be able to catch up in this quarter,” explained Spence.

Wall Street is mostly sticking with Sonos despite the selloff. Of the six sell-side analysts that published reports post earnings, none altered their ratings on the stock, according to Bloomberg data. It’s worth noting that one analyst retained a Sell rating on the stock, while the other five maintained a Hold or Outperform rating.

“With the stock +150% since March, investors were disappointed to see supply shortages limit revenue potential. We think growth in the direct-to-consumer channel will come at a higher margin (in Q4, Sonos is guiding to its highest gross margin since Q4'17), which could provide a tailwind to the long-term margin profile,” wrote Jefferies analyst Brent Thill.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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