Source: Unsplash
Sonos (NASDAQ:SONO) reported first-quarter financial results this week, with earnings growth and gross margin. The home-speaker maker is sometimes overlooked as a consumer electronics powerhouse, but its wide product range, premium branding (which has since expanded downmarket through partnerships with the likes of IKEA), and strong fundamentals could mean its growth outlook is the most important factor for investors right now.
On the back of significant demand, shares of Sonos rose in early 2021, but they have since decreased in tandem with other tech stocks.
The company reported solid earnings in the first quarter of 2022, exceeding market expectations. However, growth was hampered by supply-chain difficulties as seen in Q2 results. This isn’t only an issue for Sonos; it’s a problem for many consumer-goods companies worldwide. Despite strong earnings, investors responded favourably to them, with the stock increasing 10% on the news of the release.
First-quarter fiscal 2022 (unaudited results) were reported as:
- Revenue increased 3% year-over-year to $664.5 million; on a constant-currency basis, revenue increased approximately 3.5% year-over-year
- Gross margin increased 140 basis points to 47.8%
- GAAP net income of $123.5 million compared to $132.3 million last year; non-GAAP net income excluding stock-based compensation, restructuring, and legal and transaction related fees of $144.8 million compared to $153.2 million last year
- GAAP diluted earnings per share (EPS) of $0.87 compared to $1.01 last year; non-GAAP diluted EPS excluding stock-based compensation, restructuring, and legal and transaction related fees of $1.02 compared to $1.17 last year
- Adjusted EBITDA of $163.1 million compared to $166.3 million last year
- Adjusted EBITDA margin of 24.6% compared to 25.8% last year
- Cash flows from operating activities of $179.9 million
- Free cash flow of $173.6 million
Source: Sonos, Inc.
The company has achieved significant success as a result of a strong product portfolio that includes the IKEA co-branded items (the bookshelf speaker, SYMFONISK, costs $99), giving Sonos an edge in the entry-level market.
Thanks to economies of scale, the company’s gross margins have grown, to be around 50% through the first quarter. With new products in the pipeline, this number is likely to grow.
The company has plans to release a smart TV next year and is expanding its product line with more home-automation devices. These additions will undoubtedly fuel growth in the coming years.
The big news is that the company sees growth continuing through 2022, raising forward guidance and the lower range of its forecasted revenues.
For fiscal 2022, the company expects:
- Revenue in the range of $1.95 billion to $2.0 billion, representing growth in the range of 14% to 16% from fiscal 2021
- Gross margin in the range of 46% to 47%. Our fiscal 2022 gross margin outlook includes minimal net tariff impact
- Adjusted EBITDA in the range of $290 million to $325 million, representing growth in the range of 4% to 17%
- Adjusted EBITDA margin in the range of 14.9% to 16.2%
Source: Sonos, Inc.
Sonos CEO Patrick Spence said in a press release: “We are pleased to report that Sonos had another excellent quarter, with record-setting revenue of $664.5 million and a strong adjusted EBITDA margin of 24.6% even as we continued to invest in our business. Importantly, we believe that we would have sold much more but for chip shortages that constrained our supply, as demand was, and continues to be, strong. Our operations team has developed considerable resiliency and we are well-positioned to deliver on our fiscal 2022 outlook, so we have increased the midpoint of our guidance to reflect this.”
“Longer term, the opportunity for Sonos is tremendous. Our flywheel of new household generation and existing customer repurchase remains a powerful driver of growth. We have a terrific product roadmap ahead to delight existing customers and attract new ones. At a mere 2% market share of the $89 billion1 global audio market, with a brand that is gaining momentum every day, we believe we are well positioned to seize the future and deliver significant shareholder value over the long-term.”
The goal for Sonos (NASDAQ:SONO) is to develop new technology that makes the process of consuming and creating enjoyable music accessible to everyone. This will be achieved through advances in sound quality, user interface capabilities, sound customization options, as well as a refreshed look and feel across the product line this year.
Whether the current growth can continue is yet to be seen, but there is one trend working strongly in the company’s favour: at-home entertainment is here to stay. The growth of at-home entertainment in the past two years has outpaced traditional linear media, and this is only going to continue.
When people are increasingly preferring to watch movies and television programs at home rather than going out for the experience, they’re also adding Sonos-equipped at-home entertainment systems to their homes, for smart audio connectivity throughout multiple rooms.
