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Sonos Speakers Now Play Catch-Up -- WSJ

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10/05/2017 | 08:48am CEST
By Yoree Koh 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 5, 2017).

Sonos Inc., the pioneer in wireless speakers, was on its way to $1 billion in sales in 2015 when Amazon.com Inc.'s Echo smart speaker took off. Sonos's sales fell off a cliff.

Sonos now has a new game plan: Partnering with its rivals -- all of them.

On Wednesday, the Santa Barbara, Calif.-based company is announcing its first smart speaker, the $199 Sonos One, powered by Amazon's Alexa voice assistant. By next year, the company will integrate Alphabet Inc.'s Google voice assistant, and down the road hopes to make its smart speaker compatible with Apple Inc.'s Siri and others. The partnerships would mean consumers wouldn't need to choose one tech giant's services over another -- Sonos could serve them all.

The company built a loyal fan base by letting customers play music in every room of a home through a network of wireless speakers that supported streaming services such as Spotify and Apple Music. Speakers, though, are no longer just for listening to music.

Chief Executive Patrick Spence admits the company became "complacent" when it came to artificially intelligent assistants. Sonos "missed the turn on voice," he said in an interview.

Amazon's Echo has become a game-changing product thanks to Alexa, which can play music, answer questions, relay the day's news, provide weather forecasts and more. The Echo has captured about three-quarters of the U.S. market for smart speakers, with more than 15 million total devices sold as of June, according to Consumer Intelligence Research Partners.

On Wednesday, Google, which has the other quarter of the smart-speaker market, is expected to unveil a successor to its Google Home speaker. Apple is readying its $349 HomePod speaker for a December release.

Sonos saw itself getting shut out of a category it helped create.

Its pivot came amid change at the top. In January, founder John MacFarlane stepped down after 14 years as chief. Mr. Spence took over and has sought to make Sonos, known for its obsessive but time-consuming attention to detail, move faster to catch up in the smart-speaker revolution.

Sonos, which has raised about $110 million in primary funding from investors, including Index Ventures and KKR & Co., also is seriously considering an initial public offering, the company said.

As part of its strategy of working with the very rivals that upended it, Sonos said it would support Apple's AirPlay 2 in 2018, letting owners control their Sonos speakers through any Siri-enabled device such as an iPhone. A free software upgrade will allow Sonos speakers to be controlled through any Alexa device such as an Echo or Dot.

Partnering with a tech giant won't make it any less a competitor, analysts said. The cash-rich giants are able to adjust the price on their speakers more easily than a smaller player like Sonos, said Ben Arnold, an analyst at NPD. Amazon flexed those muscles last week when it cut the price on the Echo by $80 to $100.

One hurdle will be getting tech juggernauts to play nice. For instance, Sonos users can ask Alexa to play music if they also subscribe to Amazon Prime, but they won't be able to use their voice to start a song on Apple Music.

Mr. Spence said he isn't worried: "Our job is solving those gaps over time."

Mr. Spence said the company is back on track to cross $1 billion in revenue this year, helped by sales of its $699 Playbase, a wireless speaker for TVs that launched in March. Sonos hopes its inaugural smart speaker will continue that momentum.

"The promising tailwind that we have is more interest in smart speakers thanks to the work of Amazon and Google jumping in," Mr. Spence said.

Write to Yoree Koh at [email protected]

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Financials ($)
Sales 2017 175 B
EBIT 2017 3 239 M
Net income 2017 1 825 M
Finance 2017 12 481 M
Yield 2017 -
P/E ratio 2017 260,18
P/E ratio 2018 118,73
EV / Sales 2017 2,64x
EV / Sales 2018 2,00x
Capitalization 474 B
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Number of Analysts 48
Average target price 1 155 $
Spread / Average Target 17%
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NameTitle
Jeffrey P. Bezos Chairman, President & Chief Executive Officer
Brian T. Olsavsky Chief Financial Officer & Senior Vice President
John Seely Brown Independent Director
Patricia Q. Stonesifer Independent Director
Tom A. Alberg Independent Director
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