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Why Is Sonos Stock Falling?

Story Highlights

Shares of Sonos tanked 18.5% in after-hours trading yesterday after the wireless smart home sound system maker reported disappointing Q3 results and slashed its FY2022 outlook due to a challenging macro environment.

Shares of Sonos (SONO) lost 18.5% in the extended trading session on Wednesday after the company reported weaker-than-expected fiscal Q3 results and announced a cut in its full-year outlook.

Headquartered in California, Sonos, Inc., designs, develops, manufactures, and sells multi-room wireless smart home sound systems, including wireless speakers, home theatre speakers, components, and accessories.

A Snapshot of Q3 Results

The company reported breakeven adjusted earnings, which massively lagged analysts’ expectations of $0.21 per share. It had reported earnings of $0.12 per share in the prior-year period.

Revenues declined 1.8% year-over-year to $371.8 million and fell short of consensus estimates of $421.55 million.

Though gross margins slightly improved by 20bps to 47.3%, adjusted EBITDA margin declined 100 bps to 11.3%.

At the end of the quarter, the company reported negative free cash flow. Cash and cash equivalents, however, came in at $640.1 million, higher than $439.7 million at the end of the prior quarter.

Sonos Slashes FY2022 Outlook

Sonos CEO Patrick Spence stated, “We have seen the macroeconomic backdrop become significantly more challenging for us starting in June as the dollar’s appreciation and high inflation have adversely affected consumer sentiment globally, particularly in the categories in which we play. As a result, revenue missed our expectations for Q3 and we are adjusting our FY22 outlook accordingly.”

As a result, management slashed the financial guidance for FY2022. The company now forecasts revenues to be $1.73-$1.755 billion, lower than the prior outlook range of $1.95-$2.0 billion.

Further, adjusted EBITDA is likely to decline 17% to 23% in the range of $215 million to $230 million versus the prior outlook range of $290 million to $310 million, which implied a rise of 4% to 11%.

TipRanks’ website traffic screener highlighted the drop in website visits in June 2022, ahead of its results.

Per the tool, website visits to were down 0.23% year-over-year in June 2022. Further, traffic declined 4.5% in the first six months of this year. The decline in website visits indicated that the company was facing headwinds from the challenging macro environment.

Is Sonos Stock a Buy?

The Wall Street community is cautiously optimistic about the stock and has a Moderate Buy consensus rating, which is based on three Buys and three Holds. SONO’s average price target of $30.17 implies 32.5% upside potential to current levels.

Final Thoughts

Due to the uncertain macroeconomic environment, Sonos has not only cut its FY2022 outlook but also slashed its long-term targets. The company now expects its long-term goal of $2.5 billion in revenue, 45-47% in gross margins, and 15-18% in adjusted EBITDA margins to extend beyond FY2024.

Looking at the ongoing macro uncertainties, investors may want to wait and watch before gaining exposure to the stock.

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