Sonos Pops 23% On Blowout Quarter, Announces Share Repurchase Plan

Shares of Sonos spiked 23% in Wednesday’s extended market session after the smart speaker maker’s quarterly results topped the Street’s expectations as the coronavirus pandemic fueled demand for stay-at-home products.

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Sonos’ (SONO) fourth quarter revenue increased 16% to $339.8 million, exceeding analysts’ expectations of $299 million. Growth was driven by direct-to-consumer sales, which jumped 67% year-on-year. The company earned an adjusted 15 cents per share in the three months ended Oct. 3 after posting a loss per share of 28 cents in the year-ago period. Analysts had forecasted earnings of 2 cents per share.

Sonos offers a complete wireless home sound system based on a whole-house WiFi network, with users able to play music on any of the wireless speakers located throughout a house. In fiscal 2020, the company added a record 1.8 million net new households, while listening hours increased 33% compared to the 29% growth recorded last year.

“We reached an inflection point in the fourth quarter that demonstrates the power and profitability of our model. Fiscal 2020 was the 15th year in a row we grew total households by at least 20%, while our existing customers once again showed strong repurchase habits, accounting for a record 41% of total product registrations,” Sonos CEO Patrick Spence said. “In fiscal 2020, we delivered a record 8.2% adjusted EBITDA margin, or 10.6% excluding the effect of tariffs, and we project delivering 12% to 14% adjusted EBITDA margins next year, which is ahead of our prior targets.”

For the 2021 fiscal year, Sonos expects to generate sales of between $1.44 billion to $1.5 billion, which is higher than the Street consensus of $1.285 billion.

Separately, the company announced that its Board of Directors has authorized a common stock repurchase program of up to $50 million.

Shares of SONO have recovered since dropping to a multi-year low earlier this year. The stock has surged 18% over the past month and is now up 9.3% since the start of 2020.

Merrill Lynch analyst John Babcock last month upgraded the stock to Buy from Hold and raised the price target to $18 from $17.50, saying that Sonos is set to benefit from increased spending on stay-at-home products during the coronavirus pandemic.

The company “continues to have several products on backorder including its Arc and Sub products that were just launched in June, suggesting still strong demand even as backlogs are off peak levels,” Babcock commented in a note to investors. (See Sonos stock analysis on TipRanks)

For now, SONO has picked up 2 Buy ratings over the past three months, which add up to a Moderate Buy analyst consensus. That’s with an average price target of $18.50, implying 8.35% upside potential lies ahead over the coming year.