Sonos Stock Has a Lot to Prove on Monday
One of last month's Wall Street debutantes will step into the quarterly spotlight for the first time next week. Sonos (NASDAQ: SONO) will report financial results after Monday's market close, giving investors their first taste of what the high-end speakers maker can do as a public company.
Sonos hasn't flopped as an IPO, but it's far from being one of this year's more scintillating rookies. It was hoping to hit the market at a per-share price between $17 and $19 in early August, settling for $15 in light of lukewarm investor demand. The shares would go on to open at $16. Sonos stock has never buckled below its debut price through its first five weeks on the market. It has traded as low as $15.51 and as high as $23.60, and that valley and subsequent peak took place in its first two days of trading. The stock finds itself in the high teens, essentially where it was hoping to price its offering earlier this summer.
Trading volume is decelerating. The stock's volatility has softened. It's almost as if Sonos is in a holding pattern, waiting for a major market event to dictate its next big move higher or lower. Spoiler alert: Monday afternoon's third-quarter earnings announcement will probably be the event that moves the stock one way or the other.
Turning up the volume
The home audio market is booming, but, unfortunately, it's crowded with tech giants offering low-margin hardware to push their larger agendas of lifestyle dominance. Sonos has embraced the same voice-activated technology as the titans of tech to enhance the appeal of its wireless multiroom speakers, but it's that much harder to stand out despite an iconic brand name when price points can be challenging in the world of smart speakers.
Sonos is growing, but probably not as fast as growth investors would like. Revenue rose 10% in its fiscal year that ended last September, accelerating to 18% top-line growth through the first half of fiscal 2018. Bulls angling for a trend of accelerating growth may find Sonos' prospectus sobering. A month ago, Sonos was pegging its financial performance for its fiscal third quarter ending in June to clock in between $206.4 million and $208.4 million in revenue, roughly 7% below the $223.1 million it rang up a year earlier. Sonos blames the expected decline on the rough comparison with the fiscal third quarter last year when it launched PLAYBASE, its first entry into the home theater sound base market.
Sonos isn't historically profitable outside of its seasonally potent holiday-containing fiscal first quarter. It has posted annual losses in the past three years, and it's expecting to post another period of red ink when it announces quarterly results next week.
It's easy to see why Sonos stock is still trading in the teens. Investors know that next week's financial update will treat them to declining revenue and a quarterly deficit. Thankfully, that's already baked into the price. Sonos will move based on how it sizes up its prospects heading into the final fiscal quarter of 2018 and how it sees the product portfolio playing out in the upcoming holiday shopping season and well into fiscal 2019. Looking back won't be pretty, but the market will weigh Sonos in its first quarterly report as a public company based on what it sees in the road ahead.
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