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Sonos CEO: We have no plans to sell out

Brian Sozzi

Sonos (SONO) just sent a loud message to investors: it’s time to listen up.

Shares of the wireless speaker company popped 9% in Friday’s session after delivering a better-than -expected first quarter as a public company. The market’s response is much welcomed for early Sonos investors who had watched the stock drop about 29% since a lackluster August IPO.

While Wall Street hasn’t been sold on Sonos’ long-term potential amid stiff competition in the smart speaker market from Amazon, Apple and Alphabet, CEO Patrick Spence told Yahoo Finance the company deserves more credit for its premium positioning.

Spence also said in an interview Sonos plans to stay an independent company. So if Amazon wanted to get into to the premium end of the smart speaker market, they best be prepared to pay up for a Sonos… or kick the tires elsewhere.

By the numbers

Sonos delivered a 27% sales increase year over year to $273 million. The company pared its net loss to $1.7 million from $14.9 million on the back of a successful debut of a $399 wireless soundbar called Sonos Beam and ongoing interest in wireless smart speaker Sonos One. For the fiscal year ended Sept. 29, Sonos brought in $1.1 billion in sales and adjusted profits of $69 million.

Execs also promised to speed up the pace of new product introductions, too. That call out is a key factor in Sonos’ somewhat upbeat guidance for its new fiscal year. Sonos sees sales coming in at $1.25 billion to $1.275 billion for the fiscal year. Adjusted operating profits are expected to rise to $83 to $88 million.

Sonos Play 1 (Wikimedia Commons)

Where Sonos did let investors down was on the profit margin front, reflecting lower initial margins on new products and fierce competition. Gross profit margins fell 550 basis points from the year ago quarter to 42.6%.

Why it matters

If Sonos could get another good quarter under its belt — especially during the important holiday shopping season — it would go a long way to winning over the naysayers on Wall Street. And there is no shortage of them at the moment. Out of seven analysts that cover Sonos, four of them rate the stock a sell or a hold.

“Sonos positioning as the leader in the premium category has not yet been challenged, and we see launches such as Amazon’s Sub as an indication that bigger tech cos are increasingly looking at Sonos’ market. Without additional product launches to spur growth (outside of home especially) we worry that Sonos could lose some market share to lower priced competitors,” says Jefferies analyst Brent Thill.

Important to note is that Sonos only released two new products over the past four years before its just completed fiscal year. But, it’s picking up the pace of expansion. Sonos will debut the $599 Sonos Amp in December in the U.S. and Canada. The company is fresh off an entry into Japan via several key retailers. 

The bottom line: Smart speakers are quickly becoming a commodity category. Sonos has work to do in winning over the number-crunching haters that it could be the de facto premium play on a surging smart speaker space. Another good quarter will help silence those critics.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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