How Sonos Makes Money

Sonos Inc. (NASDAQ: SONO) started with a simple but ambitious vision. According to their website, this was “to help music lovers play any song anywhere in their homes.” This essentially meant making a multi-room, wireless home audio system. It also meant building a product that was well-made and user-friendly—fast and easy setup, easy integration with existing technology, and excellent sound quality.

Since the company was founded in 2002, Sonos—Latin for “sounds”—has been doing exactly that. On Aug. 2, 2018, the company enjoyed a successful market debut. Sonos closed out the day at 33% over its initial public offering (IPO) price, ending the day at over $19 a share and giving the company an implied market capitalization of almost $2 billion.

In 2020, Sonos' stock surged 53.6% over the year as the home entertainment company benefited from more people staying at home during the pandemic. The big question remains, however, if the company can continue to grow its revenue as competitors in the crowded consumer electronics niche look to chip away at Sonos' market share.

Key Takeaways

  • Sonos is an American company specializing in manufacturing wireless, multi-room home audio systems, including smart speakers.
  • Sonos was founded in 2002 and successfully launched its initial public offering (IPO) on Aug. 2, 2018.
  • Prior to going public, the company operated at a net loss for several years.
  • In April 2021, Sonos reported second-quarter results—the company reported net income increased 710% to $149.5 million for the six months ending April 2021 from $18.5 million the previous year.
  • The company's increased sales were credited to an increase in consumer demand for home entertainment products during the pandemic.

Sonos' Home Audio

Sonos offers a product line of wireless, multi-room speaker systems, which allow users to control the speakers from anywhere in the house. Using the Sonos app on their smartphone, users can manage their Spotify, Apple Music, and Internet radio apps, along with 80 other music streaming apps.

Sonos offers speakers with voice control so that users can call out commands to Google Assistant or Amazon's Alexa. For all music streaming services, these speakers allow their customers to use their voices to pause a song, adjust the volume, etc. For services supported by Amazon’s Alexa, the controls are more intricate—users can use their voice to select particular artists, songs, albums, playlists, and podcasts, etc.

IPO—Sonos Goes Public 

Prior to going public in 2018, the company reported they had sold 19 million products to roughly 6.9 million households. This means the company’s business model was working, kind of—users purchased nearly three speakers, on average, meaning that users were indeed buying home audio systems, and not just speakers.

At first, this did not help Sonos to turn a profit. Despite generating $992.5 million in revenue in the 2017 fiscal year, the company reported a net loss of $14.2 million. This was, however, an improvement on the previous year. In 2016, the company reported a net loss of $38.2 million from $901.3 million in revenue.

The company's first quarter after going public was a pivotal one. On Nov. 15, 2018, Sonos reported a record-breaking quarter, generating $273 million in Q4 revenue, which represented a 27% year-over-year growth. Equally important, the company shaved its net loss to just $1.7 million, an indicator to management that future profitable quarters might be ahead.

Sonos' Financials

On April 3, 2021, Sonos reported strong second-quarter fiscal 2021 results. The company reported that GAAP net income for the first six months of the fiscal year increased to $149.5 million from $18.5 million over the previous year. Revenue came in at $978.5 million for the first six months, a year-over-year increase of 33%. Free cash flow (FCF) was -$47.15 million.

CEO Patrick Spence said that despite the challenges of the pandemic, the company delivered the best quarter in its 18-year history for the first quarter of 2021. Spence commented, "We welcomed a record number of new customers while a record number of existing customers returned to add additional products to their system. Based on our outstanding first-quarter performance, the momentum in our business, the exciting products we have planned for the future, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021.”

Next Steps for Sonos

Sonos numbers among its competitor companies like Bose and Sony. Vying for some market share of the speaker and home audio industry is difficult, to say the least. Additionally, as the industry moves increasingly towards smart assistants and voice-recognition, Sonos will have to continue to adapt. One of its stated goals? To partner with a wide variety of streaming music services, voice assistants, and connected home integrators.

In other words, in order to remain competitive in this market, Sonos may find itself investing in improving sound-quality, in varied retail partnerships, and in music streaming service, voice assistant, and connected home integrator partnerships.

Article Sources

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