Audio manufacturer Sonos Inc. (SONO) posted mixed results for Q4 2024. The company has experienced a challenging environment owing to an unprecedented mobile app debacle, which it launched in May. The poorly rated app, which in some cases made the products unusable, has significantly impacted the company, leading to the layoff of 100 employees and an anticipated overall lost revenue of $100 million. Sonos responded to this crisis by investing $4 million into app recovery initiatives, aiming to resolve issues resulting from the software overhaul.
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Despite the existing challenges, the company also launched two new innovative products – Arc Ultra and Sub 4- and strives to maintain its market leadership in the home audio sector. The stock is down 17.85% year-to-date, driving the company into relative value territory. It is a potential turnaround opportunity that value-oriented investors may find intriguing.
Sonos’ Moving Forward with New Products
Sonos is a company that specializes in the development, manufacture, and distribution of wireless multi-room smart home sound systems. Its product range comprises a variety of audio products and services such as wireless, portable, and home theater speakers, along with components and accessories.
The company entered the wireless over-ear headphones market with the launch of Sonos Ace in June. The product has been well received, and TIME named it a 2024 Best Invention in the entertainment and gaming category. Furthermore, to maintain its strong position in the home audio market, Sonos has recently launched two new products: Arc Ultra and Sub 4. The initial feedback for these products has been positive, indicating their potential success in the face of prevailing industry challenges.
Analysis of Sonos’ Recent Financial Results
Sonos recently released its Q4 and fiscal 2024 financial results. The quarter’s revenue was $255.4 million, beating analysts’ expectations by $6.96 million. The adjusted EBITDA was reported at -$22.6 million, and the non-GAAP net loss was $22.1 million, translating to non-GAAP diluted earnings per share (EPS) of -$0.44.
For Fiscal 2024, total revenue was $1,518.1 million, with a GAAP gross margin of 45.4%. Adjusted EBITDA reached $107.9 million, while non-GAAP net income was $71.4 million, with non-GAAP diluted EPS of $0.56.
Sonos’ management has offered guidance for Q1 2025, anticipating a 9%-22% decline in sales. GAAP gross margin is expected to be between 41%-43%, with the non-GAAP gross margin roughly 80 to 90 basis points higher. The adjusted EBITDA forecast falls between $35 million and $79 million but has been reduced by $5 million to $10 million to account for investments in app recovery. Sonos continues to invest in app recovery efforts, with a budget of $20 million to $30 million, and the remaining amount to be spent throughout fiscal 2025.
What Is the Price Target for SONO Stock?
The stock has been downward, shedding over 59% in the past three years. Yet, it has shown signs of life recently, rebounding 20% over the past three months. It trades near the middle of its 52-week price range of $10.23 – $19.76 and shows positive price momentum as it trades above the 20-day (13.31) and 50-day (12.89) moving averages. The P/S ratio of 1.13x sits well below the Consumer Electronics industry average of 4.99x, marking a relative discount to industry peers.
Analysts following the company have taken a cautious stance on SONO stock. For instance, Morgan Stanley analyst Erik Woodring has issued a Sell rating on the shares with a price target of $11.00. He notes that guidance for the first quarter of FY 2025 indicates revenue and that the adjusted EBITDA is significantly below previous estimates.
Overall, Sonos is rated a Hold based on the aggregate recommendations from four analysts. The average price target for SONO stock is $15.33, representing a potential upside of 6.83% from current levels.
Sonos in Summary
Sonos continues to navigate challenging waters following the mobile app setback that significantly impacted the company. However, Sonos remains resilient and innovative, continuing its investment in app recovery initiatives and recently launching new products with positive initial feedback. Despite ongoing challenges, the company has seen recent positive price momentum, and its current relative value may present a turnaround opportunity for value-oriented investors.
