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Sonos (SONO) 7 Aug 24 2024 Q3 Earnings call transcript

AInvestThursday, Aug 8, 2024 1:55 pm ET
2min read

In Sonos Inc.'s latest earnings call, the company provided a mixed bag of news, including both disappointing app issues and promising progress in new product categories. The call, led by CEO Patrick Spence, highlighted the company's focus on addressing app problems and the impact on Q4 revenue expectations.

App Challenges and Q4 Revenue Adjustments

The most significant development from the call was the revelation of issues with Sonos' new app, which has resulted in a reduction of Q4 revenue expectations. The company, which had planned to launch two new products in Q4, will now delay their release until the app experience meets the expected quality. This decision, though painful, is seen as a necessary step to set future products up for greater success. Spence acknowledged the disappointment, stating, "It's my 1 focus, and I will not rest until we're in a position where we've addressed these issues and have customers raving about Sonos again."

Investing in App Improvements and Customer Support

To address the app issues, Sonos is investing approximately $20 million to $30 million in fixing the app, supporting customers, and regaining trust. This investment is expected to come in the form of revenue and gross profit reductions, as well as operating expense increases. The company is also increasing its investment in customer support to engage with more customers and partners faster, recognizing that customer support has always been a differentiator for Sonos.

New Product Categories and Strategic Expansion

Despite the app challenges, Sonos' entry into the premium over-the-ear headphone market with the launch of Ace has been successful. The first headphones have been well-received, with high customer ratings and meaningful share in the category despite competitor promotions. This expansion into new categories is part of Sonos' strategy to diversify revenue streams and continue to innovate beyond its established home audio products.

Financial Performance and Outlook

Sonos' Q3 revenues came in slightly ahead of expectations at $397 million, up 6% year-over-year, primarily driven by the introduction of Ace. However, the company's year-to-date revenue is down 6.5% year-over-year, reflecting the impact of the app challenges. For Q4, Sonos now expects revenue in the range of $240 million to $260 million, down from previous expectations, due to the app issues and delayed product launches. The full-year revenue expectation is now in the range of $1.503 billion to $1.523 billion, down from the earlier guidance.

Looking Ahead

The earnings call provided a glimpse into Sonos' strategic focus on addressing the app issues and expanding into new product categories. The company's commitment to improving the customer experience and regaining trust is evident, and the investment in customer support and app development underscores this priority. As Sonos navigates the challenges of the app rollout and the ongoing macroeconomic environment, its entry into the headphone market and planned product innovations offer potential for growth and diversification. The coming quarters will be crucial in assessing Sonos' ability to turn around the app situation and deliver on its long-term vision.

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