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Will Amazon's New Sub Sink Sonos?

By Rick Munarriz - Updated Sep 20, 2018 at 2:10PM

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Shares of Sonos have fallen 32% over the past seven trading days, and it might only get worse if Amazon's Echo Sub makes a splash ahead of the holiday shopping season.

Amazon.com (AMZN 0.25%) appears to be beefing up the sonic experience of its Echo line of digital assistants and smart speakers, giving Sonos (SONO -2.72%) and its investors something else to worry about. The Verge is reporting that Amazon has leaked a new subwoofer on its U.K. website, giving its Echo products greater versatility as a stereo or home theater appliance. 

The new Echo Sub can be wirelessly paired up with one or two Echo devices to enhance the audio quality of streams with a deep bass sound. Echo Sub is priced at 75 Great British Pounds, translating to a price point of less than $100. Sonos Sub -- its own wireless subwoofer -- retails for $699. Sonos Sub is larger, decoratively stylish, and likely superior when it comes to specs, but it's hard to argue that Amazon filling a niche with a product that feeds its Alexa-propelled ecosystem at another ridiculously low price point won't be bad news for Sonos. 

Amazon Echo, the online retailer's original smart speaker.

Image source: Amazon.com.

A bad first impression

Amazon is a disruptor. When the dot-com darling enters a category it can blow it up with subsidized pricing and marketing to its growing fan base, but it doesn't always have to leave its rivals in tatters. Sometimes an entrenched leader finds a way to thrive. The problem for Sonos is that it was already doing a good job of alienating investors on its own. 

Shares of Sonos have shed nearly a third of their value since the maker of high-end wireless speakers posted disappointing quarterly results last week. Revenue declined 7% for the period, and while that was in line with the company's earlier outlook its guidance for the current quarter left a lot to be desired. Sonos went public at $15 less than two months ago, and on Tuesday, it finally buckled below its IPO price. 

An already rough rookie season for Sonos may get worse if Amazon launches Echo Sub soon. High-end audiophiles will argue that you can't compare Sonos Sub to Amazon's tiny six-inch subwoofer, but the investing thesis for buying into Sonos this summer is that there's upside potential as its products go more mainstream. Hitting the masses will get that much harder when tech giants are angling for the same wireless smart speaker market. A lack of current profitability on Sonos' part will also raise concerns about its ability to compete on price. It's hard to compete when a deep-pocketed juggernaut has its heart set on expanding its ecosystem -- or in this case Echo system -- at Sonos' expense.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,151.82 (0.25%) $5.44
Sonos Stock Quote
Sonos
SONO
$20.77 (-2.72%) $0.58

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