U.S. Markets closed

Why Sonos paid almost $40 million for an AI startup

Brian Sozzi

Sonos (SONO) has listened to whoever pitched it this AI startup.

The high-end speaker manufacturer said Wednesday evening it has spent $37.5 million to acquire Snips. Sonos CEO Patrick Spence said on Yahoo Finance’s The First Trade the acquisition will bring the company new technology to help widen its audio quality lead over rivals in the speaker industry.

Spence says Sonos has no plans to create an Amazon Alexa like voice assistant.

Meanwhile, Sonos reported a fourth fiscal quarter loss of 28 cents a share, worse than analyst estimates for a loss of 18 cents a share. The company’s sales rose 8% from the prior year to $294 million, beating projections for $289.2 million. Sonos’ sales were paced by strength in wireless speaker, which saw a 14% increase on the back of its One and Move product lines.

Sonos shares rose 6% in Thursday trading.

Toronto , Canada - 23 May 2019; Patrick Spence, CEO, Sonos, on Centre Stage during day three of Collision 2019 at Enercare Center in Toronto, Canada. (Photo By Stephen McCarthy/Sportsfile via Getty Images)

Earnings were hurt by $30 million due to President Trump’s tariffs on China goods. Spence views the hit as one-time in nature.

“The good news is that it is a one-time hit. We have accelerated our global diversification of manufacturing plan, so we are just getting up and running in Malaysia.” Spence says Sonos has eaten the cost of tariffs, meaning no price increases. It intends to make products in Malaysia and China moving forward.

For fiscal year 2020, Sonos sees sales in a range of $1.37 billion to $1.4 billion. Wall Street modeled for $1.37 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is expected in to be $102 million to $112 million. Estimates called for $103.8 million.

The mid-points of the guidance would put Sonos in line with its long-term targets of 10% and 20%, respective annual growth in sales and EBITDA.

Jefferies tech analyst Brent Thill thinks Sonos’ guidance is achievable as it releases new products and gains momentum with new partner Ikea. But Thill advises a bit of caution on Sonos’ stock given its heady run this year.

“We are encouraged by the positive results and expected contributions from the recent Move and SYMFONISK launches, but believe that with SONO up 45% YTD investors will look for greater than 10% revenue growth and 20% EBITDA growth for FY20,” Thill says. 

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

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.