Famous for its sound systems with high-end audio quality, home speaker company Sonos has announced it is going public. Sonos, founded in 2002, is a pioneer in the speaker industry thanks to its wireless audio systems.
Sonos will price its initial offering between $17 and $19 a share, giving the company a market cap of up to $1.9 billion and a 1.9x EV/Revenue multiple at the time of the deal.
Here are some key factors, both good and bad, that investors should keep in mind ahead of Sonos’ IPO:
Strong Market Position with Loyal Customer Base
Sonos boasts a very strong market position as a leader in the industry. The company was the first in the world to release a wireless multi-room home speaker system in 2005.
Its primary business is working with contractors on the installation of home theater speakers. Its other business is smart speakers, which include a range of products it sells through approximately 10,000 third-party physical retail stores.
Sonos today has a customer base of around 6.9 million, and with its established partnerships with popular music streaming services such as Spotify (SPOT ) , Apple Music (AAPL ) , and Pandora (P ) , its customer base is likely to grow.
Historically Steady Financials
Sonos shows historically steady financials in terms of its revenue and gross margins. According to FactSet, the company is on its way to generating $1 billion in revenue for this year through September.
Sonos’ revenue has been trending upward since the fiscal year of 2016. Also, for the past five years, Sonos has been generating consistent gross margins of about 46 percent on average.
Increasing Competition in the Market
Considering the reasons above, Sonos looks like a strong company. However, its strong position can be threatened by increasing competition in the industry.
Initially, when voice-assisted speakers from Amazon (AMZN ) and Google (GOOGL ) emerged in the market, Sonos was quick to partner with these tech companies to integrate their technologies. For example, the Sonos One and Sonos Beam feature Amazon’s Alexa voice assistant and Apple’s AirPlay in the speakers.
However, Sonos doesn’t have a voice assistant of its own; it is highly dependent on the tech moguls that have developed the technology. So, although integrating their voice assistants was a good idea at first, now, with these tech firms having smart speakers of their own, it could cause a problem for Sonos.
Sonos’ partners’ emergence with their own smart speakers will work against the company’s strong position in the market and its customer base.
Bottom Line
All IPOs present unique risks, and when deciding to buy Sonos’ stock at the start, investors should keep consider both the good and the bad factors influencing the company. Sonos is a strong industry leader, but it faces tough competition. Invest wisely.
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