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Sonos Updates Three Key Risk Factors

Shares of audio products provider Sonos, Inc. (SONO) have surged 50.7% over the past 12 months. In its recent fourth-quarter results, Sonos’ top line fell short of expectations; however, the company delivered positive earnings per share (EPS) against the Street’s expected loss.

Significantly, management noted that Sonos is beginning 2022 with a substantial backlog amid the industry-wide supply constraints, and expects to deliver a strong fiscal 2022.

With these developments in mind, let us take a look at the changes in Sonos’ key risk factors that investors should know.

Risk Factors

According to the TipRanks Risk Factors tool, Sonos’ top risk category is Ability to Sell, accounting for 30% of the total 40 risks identified. In its recent annual report, the company has changed three key risk factors.

Under the Finance & Corporate risk category, Sonos acknowledged that it has a history of losses and expects to incur increased operating costs in the future, while it expands operations and executes on its product roadmap and strategy. Consequently, there remains a risk that Sonos may not sustain profitability or consistent revenue growth in the future. As of October 2, Sonos had an accumulated deficit of $69.9 million.

Under the Ability to Sell risk category, Sonos highlighted that historically it has provided backward compatibility for its older products and the supporting software. However, as Sonos continues to improve and enhance its software platform, this backward compatibility may not be practical or cost-effective.

Consequently, Sonos may decrease or discontinue service to its older products. The risk remains that such a move may damage relationships with current customers, Sonos’ reputation, brand loyalty, and the ability to attract new customers.

Under the Macro & Political risk category, Sonos noted that its business has been negatively impacted by the COVID-19 pandemic, and this negative impact may also be seen in the future. (See Insiders’ Hot Stocks on TipRanks)

Interestingly, Sonos also witnessed increased demand for its products during the pandemic as people were forced to stay indoors. The company added that as the pandemic mitigation measures or mandates ease, it cannot predict how this will impact product demand or change consumer spending habits in general.

Compared to a sector average of 14%, Sonos’ Ability to Sell risk factor is at 30%.

Wall Street’s Take

On November 18, Morgan Stanley analyst Kathryn Huberty reiterated a Buy rating on the stock and increased the price target to $53 from $51.

The analyst highlighted that Sonos’ stronger-than-estimated guidance points to how soon the company is penetrating a large addressable market.

Consensus on the Street is a Strong Buy based on 3 unanimous Buys. The average Sonos price target of $50.33 implies a potential upside of 56% for the stock.

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