How Does Sonos Make Money?

Sonos Inc. (NASDAQ: SONO) started with a simple but ambitious vision. According to their website, this was “to help music lovers play any song anywhere in their homes.” This essentially meant making a multi-room, wireless home audio system; and building a product that was well-made and user-friendly — fast and easy setup, easy integration with existing technology, and excellent sound-quality.

Since the company was founded in 2002, Sonos–Latin for “sounds”–has been doing exactly that.

Sonos offers a line of wireless, multi-room speaker systems, which allow users to control the speakers from anywhere in the house. Using the Sonos app on their smartphone, users can manage their Spotify, Apple Music and internet radio apps, along with 80 other music streaming apps.

More recently, the home audio giants have started offering speakers with voice control. For all music streaming services, this speaker allows its customers to use their voice to pause a song, adjust the volume, etc. For services supported by Amazon’s Alexa, the controls are more intricate —users can use their voice to select particular artists, songs, albums, playlists and podcasts, etc.

Sonos' commitment to excellent, easy to use, wireless, multi-room speaker systems has paid off, to some extent.

On August 2, 2018, Sonos had its initial public offering (IPO) with shares initially trading at $16.00. This price gave the company an implied market value of a little over $1.5 billion. 

The company reported that they had sold 19 million products to roughly 6.9 million households. This means the company’s business model is working, kind of —users buy nearly three speakers, on average, meaning that users are indeed buying home audio systems, and not just speakers.

Thus far, this has not helped Sonos to turn a profit. Despite generating $992.5 million in revenue in the 2017 fiscal year, the company reported a net loss of $14.2 million. This was, however, an improvement on the previous year. In 2016, the company reported a net loss of $38.2 million from $901.3 million in revenue.

As of March 31, 2018, the company had produced $655,670 in revenue, and a net income of $13.1 million, putting the company on track to generate more than $1 billion in revenue this year.

In a piece published in Variety in early 2017, Sonos CEO stated that any new fundraiser public offering “may...be used to reward its almost 1,500 employees.”

However, Sonos numbers among its competitors companies like Bose and Sony. Vying for market share of the speaker and home audio industry is difficult, to the say the least. Additionally, as the industry moves increasingly towards smart assistants and voice-recognition, Sonos will have to adapt. One of its stated goals? “To partner with a wide variety of streaming music services, voice assistants, connected home integrators,” etc.

In other words, in order to remain competitive in this market, Sonos may find itself investing in improving sound-quality, in varied retail partnerships, and in music streaming service, voice assistant and connected home integrator partnerships.

It’s possible that Sonos has gone public in order to raise the capital necessary for these projects and partnership negotiations.