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Sonos, Inc. (SONO) - Wall Street’s Best Digest Daily Alert - 4/28/21

This dynamic company has changed the way that sound is amplified in our homes and automobiles. Analysts expect it to grow earnings at an annual rate of 26.6% over the next five years.

This dynamic company has changed the way that sound is amplified in our homes and automobiles. Analysts expect it to grow earnings at an annual rate of 26.6% over the next five years.

Sonos, Inc. (SONO)
From Cabot Stock of the Week

Sonos was the first company to introduce multi-room wireless audio solutions. Its smart speakers, amplifiers, ports, and other audio accessories are easy to set up and offer a premium sound experience, without all the expense and hassle of running wires throughout a home.

This relative simplicity makes Sonos’ solutions a perfect fit for the millions of homes, apartments and commercial buildings that were not previously hard-wired for audio systems, and for owners that don’t want to invest in hard wiring during construction.

Sonos offers a variety of speaker options. Portable speakers range from $169 for the Roam up to $399 for the indoor/outdoor rated Move. Smart speakers range from $199 for the One up to $1856 for a surround-sound speaker set with subwoofer. For those wanting hidden options, Sonos resells Sonance architectural speakers that fit in ceilings and walls.

Speakers are only as good as the system that powers them. Sonos has you covered there too. The Port ($449) is the company’s streaming component while Amp ($649) is the amplifier.

With over 100 content providers (Pandora, Spotify, Apple Music, etc.) these components will stream podcasts, music, audiobooks, and internet radio to any in-range areas of a property that contain Sonos’ speakers, giving owners flexibility to expand their system to suit their needs.

This flexibility is one of the key selling points for first-time buyers. Management says 41% of customers came back to purchase additional products in 2020. That trend with repeat customers also helps illustrate the large opportunity in front of Sonos, which has just expanded its addressable market by up to four times (from $25 billion to $100 billion) by introducing products and partnerships beyond the home audio market and into the global audio market.

The first step here was the introduction of the Roam speaker ($169), which opens the door to younger and less-affluent potential customers that could upgrade with other Sonos products over time. A budding partnership with Ikea to launch Sonos’ smart speakers into household objects sold by Ikea builds on this initiative.

Management also recently disclosed that the company has teamed up with Audi to provide speakers in the 2022 Audi Q4 e-tron. This could signal that more automotive deals are in the works.

Finally, management is working on messaging and additional partnerships (Audi, Disney+, the North Face, etc.) to reach more people. It is also expanding into the commercial space with The Sonos For Business initiative wherein the company aims to help restaurants, shops, salons, and offices stream music via legally licensed content.

Sonos management is now pitching the company as no longer owning roughly 5% of the home audio market, but owning a much smaller slice of the much larger global audio market. That’s a compelling proposition for investors, especially as they realize that the company is increasingly open to licensing certain IP, which could drive wider adoption of services, like Sonos radio HD.

Revenue was up 11% in 2019 then expanded by a comparatively meager 5% in 2020 (to $1.3 billion) owing to Covid impacts in the first half of the year.

Analysts are currently looking for sales to grow 18% to $1.56 billion in 2021, then by 11% next year. Adjusted EPS was -$0.18 in 2020 but should flip positive to $0.81 this year and grow by roughly 25% in 2022.

SONO came public in August 2018 at 15 and jumped 33% the first day. After a little dip SONO was trading near the IPO price just prior to the pandemic, then fell below 7 during the market crash. A rebound in sales pushed SONO to 18 in July 2020.

Shares then pulled back and consolidated in the 12 to 17 range until November 18, when a huge earnings report sent SONO above 20. The stock has been making a series of higher highs and higher lows since and the current pullback to support at 40 offers a decent entry point.

Sonos, originally recommended by Tyler Laundon in Cabot Early Opportunities hit a record high on Wednesday and has pulled back normally since. BUY.

Timothy Lutts, Cabot Stock of the Week,, 978-745-5532, April 12 and 19, 2021