Sonos Goes Public With $100 Million IPO

Since Sonos introduced its first voice-controlled speaker, the Sonos One, toward the end of 2017, the company has been busy defending its position as a leader in multi-room audio. As competition from tech giants like Amazon and Apple has encroached upon territory once dominated by Sonos, the addition of voice control has allowed the pioneering company to remain current. Its newest speaker, the Alexa-enabled Sonos Beam sound-bar, was just released on July 17th and has enjoyed positive reviews. The company is also working with Ikea to design a new line of speakers that will fit “seamlessly and almost invisibly into everyday life,” according to the official Sonos blog. While these new products are aimed at the company’s core “lifestyle” customers, the “Works With Sonos” certification program has allowed home theater enthusiasts an opportunity to integrate their AV receivers (from Onkyo, Integra, and Pioneer) into a multi-room Sonos sytem. Is Sonos being smart in diversifying its offerings, or does it have fingers in too many pies? We may find out soon, as the company has recently filed to go public.

Sonos is pricing its IPO at $100 million, but has not yet divulged the price range for the individual shares, nor has it stated what percentage of the company is represented by the initial offering. Bloomberg reported in May that Sonos is expected to be valued at a total of $2.5 to $3 billion. In its SEC filing, Sonos admitted that competition is fierce, not only from the big tech companies, but also from audio brands such as Bose, Bang & Olufsen, Denon, and Polk, and from major electronics manufacturers like Samsung and Sony. As a result of this intense competition, Sonos has had to make some unpopular decisions in order to improve its bottom line. After making significant layoffs in 2016, the company cut 6% of its workforce in May of this year. Sonos also acknowledged in the SEC filing that one of its key growth strategies was to “build direct relationships with existing and prospective customers” by pushing direct sales through the company’s website and mobile app, effectively cutting out the retailers who helped build up the brand’s success.

But perhaps the riskiest move that Sonos has made is its reliance upon Amazon to provide the voice-enabled interface that makes Sonos speakers “smart.” Sonos stated in its SEC filing that half of all web searches will be spoken, rather than typed, by the year 2022. The company went on to say that “the proliferation of streaming services and the rapid adoption of voice assistants are significantly changing audio consumption habits and how consumers interact with the internet.” Wall Street seems to be in agreement, as the investment bank Morgan Stanley (one of the lead underwriters of the Sonos IPO) recently predicted that over 70% of American households will own a voice-enabled smart speaker by 2022. So it’s clear that Sonos sees the voice assistant as playing a critical role in its own success. But because Sonos and other audio companies rely on Amazon (or Google, or Apple) to provide voice-control technology, they must cede control to a third party that may or may not have their best interests at heart. Sonos recognized this risk in its IPO document, saying,

“Our current agreement with Amazon allows Amazon to disable the Alexa integration in our Sonos One and Sonos Beam products with limited notice. As such, it is possible that Amazon, which sells products that compete with ours, may on limited notice disable the integration, which would cause our Sonos One or Sonos Beam products to lose their voice-enabled functionality. Amazon could also begin charging us for this integration which would harm our operating results.”

Despite these risks, Sonos claims in the SEC filing that the company is a good bet for investors. During the period from October of 2017 through March of 2018, Sonos generated $655.7 million in revenue, an increase of 18% over the same period from the previous year. The company stated that 6.9 million households around the world are currently using more than 19 million Sonos products.

Will the partnership with Amazon allow Sonos to reach even more customers, or has the company made a deal with the devil, which it will ultimately regret? Share your thoughts in the related forum thread below.