Sonos is “The Apple of Home Audio”
Sonos is dominating the connected home speaker category, beating out Apple, Google, and Amazon, according to notable short-seller Citron Research. As of Monday morning, the firm is calling for shares of Sonos to hit $30 in 2020. With exposure to trends including stay-at-home, streaming, and the connected home, Citron claims the company is undervalued at its current enterprise value of $1 billion.
The Apple of Home Audio: Due to Sonos’ ability to produce best in class technology within its category, and its ability to get previous customers to buy new products, Citron believes the company is “very reminiscent of Apple.” Citron cites that existing households represent 37% of new product registrations with the average home carrying 2.9 Sonos products.
Patent power: Despite competition from tech giants, a strong portfolio of patents could help Sonos maintain an edge on innovation. According to IEEE, Sonos ranks second by Pipeline Power, behind only Apple.
M&A speculation: Sonos has been rumored to be an acquisition target by Apple. Citron says “the recent trajectory of Sonos’ business would make this a better time than ever.” Other possible acquirers are Google, Amazon, Netflix, Spotify, Samsung, and Sony, according to Citron.
Positive trends for Sonos sales: Citron highlights a handful of points that could suggest Sonos will shatter expectations in their next earnings report:
Citron says Google search trends for Sonos are up 110% year-over-year in May 2020 vs. up 79% y/y in April and up 3%y/y in March.
Currently, 4 of the 7 products are sold out on www.sonos.com and backordered until July 7 to July 17. They are also sold out on Amazon and Best Buy. Citron says this is a demand issue, rather than a supply chain issue.
Credit card data signals strength in consumer spending for Sonos products.
The other side: Sonos shares have yet to recognize any stay-at-home benefits. The stock is currently down around 15% since the start of 2020, and delivered a disappointment in its most recent earnings report, with March sales declining 23% due to weak global demand and physical store closures. D.A. Davidson analyst Tom Forte lowered his price target to $12 from $20 in response to those results.
