Sonos CEO Patrick Spence joins Yahoo Finance Live to discuss the company's most recent quarterly and fiscal 2020 results, which crushed analyst's estimates across the board, as well as his thoughts on the prospect of an acquisition at some point.
BRIAN SOZZI: Investors are clearly tuning into the quarter just reported over at Sonos. The stock is skyrocketing 25% this morning. Let's bring in Sonos CEO Patrick Spence to get more on this one. Patrick, always good to speak with you here. Throughout your earnings release, throughout the earnings call last night, you speak to Sonos being at an inflection point. What is that inflection point and why do you think you've arrived there?
PATRICK SPENCE: It's great to be back, Brian. Thanks for having me. You know, we think we've reached a point, really, where the power of our system has come through. And so we've really built our whole company on this basis that we want to create great products and services which attract new customers to the family, but also that existing customers come back and add additional Sonos to their system. So that's always been the power of Sonos is this notion that, you know, it gets better and better the more products that you add.
And what we've really focused on over the last three years is accelerating our new product introduction cadence. So we've gone on this consistent cadence of two new products every year. We've done that for the last three years. And that's really paying off in terms of attracting those new customers and really getting our existing customers to add additional products to their home.
We've hit an inflection point where now you're seeing the profitability in the model as well, right? So for 15 years, we've grown. Another year of great growth, but now you're really seeing it on the bottom line as well.
MYLES UDLAND: Now, Patrick, I know you got a lot of questions last night on the call about some supply constraints that you guys had mentioned that you were facing. And of course, this is your biggest quarter coming up here as we head towards the holiday season. Curious how any of those have worked out and sort of maybe what's some early returns you guys have seen with the holiday period. A lot of retailers are looking at this as an extended shopping period, not the kind of sprint we often see.
PATRICK SPENCE: Yeah, I think that's fair, Myles. It definitely is an extended period. You know, I think everybody saw shock back in the summertime given the pandemic. And then there's been a lot of scrambling, right? So we were out of stock on, I think, four or five products in the summertime just as we saw this increasing demand and a huge spike in demand. And we've really worked hard.
Our team's done an amazing job to put us in a position where we still have a couple of products that are short on supply, but we're in pretty good shape overall. And I do think it'll be more of a flat, less of a spike in this holiday period. And we're doing everything that we can at this point. Obviously, there's some industry stuff around container shortages that you've probably heard from others and some logistics issues, just as everybody tries to really pick up from the pandemic. But we're feeling really good, as indicated by our guidance last night.
JULIE HYMAN: Patrick, you're one of the many companies that has actually benefited during the pandemic from people being at home more and wanting to be in a nicer environment, maybe have better sound or more options for sound where they are. What does next year's trajectory look like? What are you expecting in terms of demand as hopefully people start to get out and about in more decided fashion?
PATRICK SPENCE: Yeah. I think, Julie, it's really interesting, because, yes, you know, we definitely, I think, have seen that people want to make their home more joyful. And so we've seen that over the past few months. But I also would point to the fact that, you know, we've been at this for 15 years. We've adopted and we've been resilient in the face of the Great Recession, in the face of other things that have happened-- in the face of big tech companies coming in and competing in our space, in the face now of the pandemic.
And so our team always adapts and is resilient in the face of anything that comes through. And what we've shown through that period is consistent growth and an ability to add new customers and get existing customers to add more. So as we've looked out when we think about the future, we think our model continues to drive really good growth on the top line and even better growth on the bottom line. And so as we looked at 21 and we're looking at the demand signals we're seeing, plus the roadmap that we have as well, we think whether we're in a world where COVID is keeping us inside or actually people are back to a little more normalcy, we're going to have a really strong year.
BRIAN SOZZI: Patrick, we've talked in the past about how the tariffs have impacted your business over the past 12 months. What's your hope with regard to tariffs and the incoming Biden administration?
PATRICK SPENCE: Well, the best news, Brian, is that we have actually put those behind us because of our diversification in our supply chain. So now that we're up and running in Malaysia, you know, tariffs are not an issue for us in fiscal '21. So we've done what we can and what's in our control. And we'll let the voters decide and the government decide what they need to do on the policy front-- whatever is best for the country. But the good news for Sonos and for our investors is that we've put those behind us.
MYLES UDLAND: Patrick, I want to ask about the streaming platform-- the Sonos Radio HD that you guys have-- what kind of uptake you've seen there. And I think you mentioned, it's your fourth-most streamed app or platform on Sonos devices. And maybe what your ambitions are there as you think about a lot of entrants into the space-- we know who the incumbents are, and how you're thinking about that today.
PATRICK SPENCE: Yeah, you know, it's complementary to a lot of what our partners do-- all the streaming services, all the great things like Pandora and Sirius and all of those. But one of the things that a lot of people don't know is that radio has been a huge part of the listening hours on Sonos. And so we saw a real opportunity to make the experience that much better and do some neat things.
So we've increased, obviously, with Radio HD, the quality, right? So you get really crystal clear quality which is pretty cool, and you also get exclusive content. And so we're really using a lot of the talent we have in the organization, our passion around great music, the stories around music that we want to share with all of our customers. And so we just got started last week. This is a whole new world for us.
We're super excited about it because services are very different. We can iterate with those. You know, we're doing things on a day in, day out basis, whereas in our hardware business, we need to figure out what the right products are two or three years from now. And we're working on those today, right? So these are two very different businesses. We think they're complementary. And we think they're very tailored to the kind of customer that we serve as well.
JULIE HYMAN: Patrick, sort of speaking of complementary services, I have to admit as someone who has followed your company, I'm surprised you haven't been bought, if I'm being honest, because there are so many other companies that sort of work with you, because of the growth that you have seen. I know you're constrained to some extent in what you can say about it, but how do you think about a potential acquisition at some stage?
PATRICK SPENCE: Well, I actually-- this is something I am very passionate about, which is I actually think we need more smaller, innovative companies that are trying to build into something much bigger. I think we've gotten into a world where we have half the number of public companies we did 20 years ago. You know, new business starts have been at an all-time low, until we've had the pandemic, actually. And so I think it's good for entrepreneurship. I think it's good for the economy if more of us actually try to be our own business, you know, stay independent, and try to drive more innovation at the end of the day. So I'm a huge advocate for people continuing to stay independent.
BRIAN SOZZI: Hey, Patrick, you want to tell us your two new product launches before your March 21 investor day?
PATRICK SPENCE: Well, you know, that's obviously baked into our guidance, Brian. We're feeling very good about what we have planned for next year. And you know we're always working on some exciting stuff.
BRIAN SOZZI: All right, I have to ask. All right, Sonos CEO Patrick Spence, have a good holiday season. We'll talk to you soon.
PATRICK SPENCE: Thank you.