Can Sonos Fend Off the Competition?

Adam Augusiak-Boro
Jul 12th, 2018
This analysis was conducted by EquityZen Securities LLC.

Sonos filed an S-1 late last week, the official coming out party for a firm as it steps closer towards a public IPO exit. Our Research team takes a deeper dive into the S-1 to uncover what to expect from the luxury speaker company. To view the full, in-depth report on Sonos, please click here.

A Closer Look at Sonos’ S-1

Sonos filed an S-1 on July 6, 2018, signaling the end of its 16-year run as a private company. After launching its first wireless multi-room home sound system in 2005, the company’s products have entered into nearly 7 million households globally. The company plans to list on the NASDAQ under the ticker “SONO”. Timing, pricing, and size of the offering are still TBA.

Bottom Line — Strong Financials, Stronger Competition

Sonos’ S-1 confirms earlier reports of strong top-line revenue as the company is on track to generate over $1B in revenue this coming fiscal year. The company even operated profitably in the first six months of FY 2018. However, the speaker market has been flooded with competitors, from private companies such as Bose to Tech Giants such as Amazon, Apple, and Google. Even Spotify is looking to venture into making its own hardware. We believe that this intense competition will be a primary concern for investors as Sonos heads towards its IPO.

angry power GIF by SpongeBob SquarePants

Validation in the Public Market

Based on our initial estimate, we believe the company could be valued at ~$2.5-3.0B versus the $572M implied valuation from its last private funding round in 2012. Please note that the company completed two tender offers to shareholders in 2014 and 2016 at a premium to the latest round of financing. Our valuation estimate is based on a FTM revenue estimate of $1.26B (assuming 15% y-o-y revenue growth) and an assumed public comparables multiple of 2.0-2.5x P/S.  We believe Sonos’ best public comp is Danish consumer electronics company Bang & Olufsen (2.3x P/S), while the Tech Giants are much larger and diversified businesses vis-a-vis Sonos.

Sonos Valuation Analysis ($ in 000s)

Below, please see our implied valuation range build for Sonos:

Source: Form S-1 (filed July 6, 2018)    

1. Sonos generated 18.1% y-o-y revenue growth in 1H 2018 and 10.1% y-o-y revenue growth at fiscal year end 2017

Sonos Public Comparables (as of July 11, 2018)

In coming up with our initial valuation estimate, we used the following public comps:

Source: Company filings; Yahoo Finance; NYU Stern; EquityZen estimates

2. Sonos’ closest public comparable and an index of consumer electronics businesses yield a P/S multiples range of 2.3-2.5x 

Click here to download the full report, which includes a deeper dive of the analysis above. As you evaluate prior investment decisions or whether to buy SONO in the future, please consider our key investment highlights and considerations from Sonos’ S-1 filing. For more information on all things private markets, IPOs, and investor/shareholder education, please check out our Knowledge Center.

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