By Jorge Mercado Sunday, November 27th, 2022

Tech market tanks

By Jorge Mercado

Senior Staff Writer

Santa Barbara-based Sonos’ profits plummeted in fiscal 2022, in line with the technology sector.

The maker of smart speakers’ net income plunged 33% in its recently ended fiscal year, the company announced after the market close Nov. 16.  By comparison, First Trust’s NASDAQ-100-Technology Sector Index Fund fell about 38% over the same period.

“The macroeconomic backdrop became significantly more challenging in Fiscal 2022,” Sonos CEO Patrick Spence said in an earnings call.

The company’s net income, adjusted for one-time losses, was $64.7 million in fiscal year 2022, down from $158.6 the year before, it reported, while revenues grew 21% to $1.75 billion, up from an adjusted $1.717 billion in the year before.

Spence said the big drag this year was Sonos’ fourth quarter. Revenue decreased 12.0% from the previous year’s fourth quarter. Net GAAP net loss grew to $64.1 million for the quarter from $8.7 million in the year before quarter.  

And not all product launches went well. Ray, a compact sound bar priced at $300, fell short of expectations, the company said earlier in the year.

The market’s immediate reaction to Sonos’ latest results was not all together negative. During trading Nov. 16, before the earnings announcement after closing of trading, Sonos stock fell 5%, to $16.84 a share, in anticipation of what the company might report. But the next day, Nov. 17, after the announcement, the stock bumped back up 3%, to $17.35, perhaps because revenues turned out to be in line with the company’s guidance at the beginning of the year. By comparison, the S&P500 closed steady those two days.

At the same time, the company’s plan for future moves is optimistic. While major players in the tech sector are making massive layoffs, Sonos will continue to add employees in 2023, Spence said. 

“We will grow our team at a significantly slower pace in fiscal ‘23 than we did in fiscal ‘22,” he said during the earnings call. “We know this runs against the grain when it comes to recent headlines.” 

Sonos has “not chased growth at all costs the way many of the companies you now hear about doing layoffs have,” Spence said. “Though our headcount is growing, we are tightening our belts, reducing discretionary spend, and doing some restructuring to make our teams more efficient.”

Sonos’ growth in 2022 was due in part to three acquisitions and the launch of five new products. 

Its biggest acquisition in 2022 was Netherlands-based Mayht, which Sonos bought for $100 million in cash on April 11. Mayht specializes in audio transducers, which a central component for creating sound creation in speakers.  

In October, Sonos launched The Sub Mini, and has exceeded initial sales forecasts so far.

“We expect this momentum to continue through the fall and into the holiday season as households build out their home theater system to enjoy sports, movies and music at home,” Spence said.

It is also a sign the market is beginning to “stabilize.”

“We were pleased to see trends stabilize in Q4, ending the year as planned,” Spence said.

Sonos’ fourth quarter sales did dip, but it was still enough to beat Wall Street’s expectations.

In the fourth quarter of 2022, Sonos generated sales worth $316 million, down 6.6% from a year earlier but ahead of the $299 million analysts expected, according to Zacks’ Consensus Estimate.

Overall, Sonos was unable to turn a profit in the fourth quarter, however, as the company suffered a net loss of $64.1 million, or 50 cents per share, a bigger loss than last year’s $8.7 million, or 7 cents per share.

When adjusted for one-time losses, Sonos still had a loss of $40.4 million, or 32 cents per share, in the fourth quarter which is below last year’s mark of positive adjusted net income worth $11.8 million or 8 cents per share.

While consumer demand is beginning to stabilize, especially in an important time as the holiday season rolls around, Spence said it is “still below the typical double digit revenue growth rate that we would expect.”

As a result, the company’s guidances for fiscal year 2023 are a bit flat.

Sales are expected to be between $1.7 billion to $1.8 billion, representing a decline of -3% to growth of 3% from fiscal 2022.

Sonos shares have remained flat since announcing its fourth quarter and full year earnings. As of Nov. 18, shares closed at $17.10.

Since the start of the year, Sonos shares are down 43%.

Sonos ended the fiscal year with cash and cash equivalents worth $274.8 million.

“And I am proud of our team’s tremendous efforts to deliver our 17th consecutive year of revenue growth. We grew the team to build on our leadership in existing categories, and pursue four additional categories, to ultimately capture more of the $96 billion global audio market,” Spence said.