Sonos (SONO 2.22%) has had a pretty uninspiring rookie season as a publicly traded company, but a surprisingly well-received fiscal third-quarter report earlier this month and a timely analyst upgrade to kick off this new trading week offer hope for a sentiment turnaround. Investors could use a break.
Tuesday marks the stock's first anniversary as a publicly traded company, and Wall Street was initially stoked when the smart speaker specialist hit the market priced at $15 a share last summer. The stock peaked at $22.25 on its second day of trading, and it's been largely downhill ever since. That Sonos shares cracked north of $13 in Monday's trading is noteworthy, as the stock had been trading exclusively in the preteens for more than six months.
Pumping up the volume
Sonos has been a broken IPO since mid-November of last year, but Monday's analyst upgrade is providing the shares with an overdue bounce. Adam Tindle at Raymond James is boosting his rating from market perform to strong buy, encouraged by a product pipeline that could jump-start top-line growth and push Sonos into new markets.
His IKEA checks show healthy initial demand for SYMFONISK -- the line of Sonos bookshelf speakers and elegant table lamps that double as Wi-Fi audio systems produced in partnership with the Swedish furniture giant -- since its debut earlier this month. Tindle also refers to anticipated announcements of new products that could scale Sonos' presence outside the home, possibly a reference to the recently leaked photos of a battery-powered Bluetooth-enabled speaker that will be truly portable. Tindle is establishing a price target of $19, near the Street high of $20 and with plenty of upside from current levels.
Sonos may have pioneered the high-end wireless audio market, but it's been a hard sell for investors. Folks see the glut of tech giants putting out cheap and typically subsidized smart speakers and start to wonder how Sonos can compete. The key here is that Sonos is finding ways to grow. Revenue has moved higher for 13 consecutive years, and it's on track to stretch that streak in fiscal 2019. Revenue soared a better-than-expected 25% in its fiscal third quarter. Sonos has also trounced analyst profit targets in each of its first four quarters as a public company.
The shares moved higher following this month's earnings news despite a slight drop in full-year guidance. Sonos now sees $1.25 billion to $1.26 billion in revenue in its fiscal year that ends next month, 10% to 11% growth over fiscal 2018. The refreshed outlook despite blowout third-quarter results translates into sharply decelerating top-line growth for the current quarter. Sonos is now targeting a 4% to 7% increase in revenue for the fiscal fourth quarter, but its guidance also delighted investors by boosting its adjusted EBITDA target for the year, fueled by gross margin clocking at the high end of its earlier range.
The analyst upgrade finds Sonos hitting a six-month high this week, but it still has room for improvement. It's still a broken IPO, but it may not stay that way if some of the new product announcements and margin improvements continue into the new fiscal year.