Sonos’ Guidance Is Crystal Clear in the Near Term but Cloudy Further Out

FAN Editor

In wireless sound company Sonos‘ (NASDAQ: SONO) fiscal third-quarter earnings report, management affirmed its full-year outlook for both revenue and EBITDA (earnings before interest, taxes, depreciation and amortization). In the video below, Motley Fool analyst Vincent Shen walks investors through the company’s fiscal 2018 guidance, while explaining the factors that make longer-term forecasts a more volatile proposition.

A full transcript follows the video.

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This video was recorded on Oct. 2, 2018.

Vincent Shen: Something that I would say falls more into the gray area is some of the guidance or the outlook that they issued for their full fiscal 2018. On the one hand, management has spoken before about their long-term targets for annual revenue being about 10% growth, and then for adjusted EBITDA, about 20% growth. Based on what they offered for their 2018 outlook — and, they had pretty good insight on this, because when they reported their fiscal third quarter, there was only about three weeks left in their fiscal fourth quarter. They expect, as you mentioned, about 11-12% top line growth, which meets that goal. On the EBITDA side, they expect growth of just 8%. Again, you come away with that depending on where you’re focused and what your take on the company is.

They caveat the growth targets by saying they won’t hit them every year. This speaks to some of the nuance in the way the company looks at their business. Going back to the point that you made about how management doesn’t care so much about their ASPs, average selling prices, for their products. They’re thinking more about, what do their customers desire right now, in terms of their product lineup? They’ll push things out that way. Management spoke about how the price range for their products ranges from $150-700, depending on what you’re looking at. The blip that we’ve seen with this quarter with the lower selling prices and the reduction in revenue as a result, we’re going to see if, in the next year or the year after that, with the new product releases, that manages to even out; or, if they’re forced into these lower-margin profile products. We’ll get into that as we talk about the new competitive landscape for smart speakers and what kind of long-term shift that might result in for the market and Sonos investors.

Asit Sharma has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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