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Listen Up: Sonos Stock Is Getting Louder

By Rick Munarriz - Feb 11, 2021 at 9:05AM

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The wireless audio pioneer hit all-time highs on Wednesday. It earned them on Thursday.

You have to love how Sonos (SONO -2.72%) continues to climb the aural wall of worry. Shares of Sonos were moving higher on Thursday, hitting all-time highs after after another blowout financial report. 

The wireless audio pioneer has been more than a survivor in the seemingly competitive niche of home audio gear. Sonos is actually thriving. Fresh after completing 15 consecutive fiscal years of top-line growth, Sonos is kicking off fiscal 2021 with double-digit revenue growth, explosive margin expansion, and guidance jacking. Sonos has a good story to tell for investors, and it's probably a good time for the market to start pumping up the volume. 

A Sonos speaker on a kitchen counter.

Image source: Sonos.

Picking up the tempo

Revenue rose 15% to hit $645.6 million for the fiscal quarter that ended on Jan. 2. Analysts were settling for a 5% increase. New products and improving on its direct-to-consumer relationships that have flourished in the pandemic helped drive the top-line beat. Relying on relatively new product introductions often comes at the expense of lower margins, but the markups at Sonos are actually widening. 

With gross margin increasing and Sonos doing a good job of keeping costs in check net income skyrocketed 87% to $132.3 million. Earnings per share clocked in at $1.01 a share -- or $1.17 a share on an adjusted basis. Wall Street was holding out for $0.88 a share in net income. Free cash flow nearly doubled. The balance sheet is also looking even better with cash growing and long-term debt wiped clean since the end of fiscal 2020. 

Boosting its guidance for the young fiscal year is the cherry on top of a monster report. Revenue is now expected to climb 15% to 19% in fiscal 2021, and that's with an extra week of sales a year earlier. Back in October it was only eyeing a 9% to 13% top-line increase. Sonos also jacked up its guidance for gross margin adjusted EBITDA. 

Sonos has come a long way in a short amount of time. What was a 14-year run of positive revenue growth seemed as if it would be toast as fiscal 2020 played out. Back-to-back periods of negative growth during the fiscal second and third quarters -- when the pandemic was at its worst -- were bailed out by a 16% surge in the fiscal fourth quarter. The full fiscal year's 5% uptick was modest, but it would still be positive even if you back out the extra week. 

Sonos gets it. Tech giants have stormed the market with subsidized smart speakers, and it seems whenever Sonos raises the bar in terms of innovation everybody else just follows suit. However, Sonos is winning its way into more audiophile homes with every passing year on the strengths of its aspirational brand. A stunning stat is that Sonos has grown its total households by at least 20% for 15 consecutive years. Sonos is the growth stock that you didn't see coming, but that's just what happens when you're gradually but consistently turning the volume knob higher. 

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