Lots of Static: Sonos Works to Tune Up Business After App Mishap, Q4 Revenues Fall, Audio Market Headwinds Expected

Known for its sound and speakers, Sonos, Inc. (SONO) reported Q4 financials. Revenues were $255M, which reflects $3M of app recovery investments. Excluding this, the company ended up close to the high end of its guidance range of $240M to $260M. Gross margins were 40.3%, or 41.1% excluding app recovery investments, which was right at the midpoint of the guidance range of 40% to 42%. Operating expenses were approximately $143M, which includes $4M million of app recovery investments in the quarter. The $12M sequential decline from the last quarter was primarily driven by lower bonus.

For those just tuning in, earlier this year, Sonos released an overhauled mobile app well before the software was ready. Sonos had challenges with the rollout of their new app, which adversely affected their revenue by at least $100M. The company made significant progress in bringing the quality of the software experience to a level they are proud of, with metrics now better than they’ve ever been, including when compared to their old app. Sonos released 16 updates so far and committed to continuing to improve the app experience on an ongoing basis. They also released a set of commitments to ensure they never make a misstep like this again, including establishing rigorous quality benchmarks, increasing testing, introducing major changes gradually, and appointing a quality ombudsperson.

For its upcoming first quarter, Sonos expects revenue in the range of $480M to $560M, a sequential increase of 88-119% from Q4. This is due to the launch of new products like Arc Ultra and Sub Four. On a year-over-year basis, Q1 revenue is expected to decline 22-9%, reflecting headwinds from the market, weakness in Sonos’ categories, ongoing challenges related to the app recovery, and proactive efforts to reduce channel inventory.

For the full fiscal year 2025, Sonos is focused on transformation initiatives to drive operating efficiencies and effectiveness across G&A, R&D, and sales/marketing. This is expected to improve profitability and growth in the long-term. Sonos plans to continue launching at least two new products per year, focusing on the biggest opportunities and doing so in the most efficient way. The company remains committed to returning capital to shareholders through its share repurchase program, which had $71M remaining under the current $200M authorization. Sonos paused share repurchases in Q4 due to the app recovery efforts, though it plans to continue returning capital to shareholders going forward.

On its conference call management highlighted that Sonos added 1M new households in fiscal 2024, which was lower than previous years, but attributed this more to cyclical challenges in the category rather than the app issues. Sonos is seeing good customer loyalty and repurchase from existing customers, with 44% of product registrations coming from existing households while making progress on its app recovery efforts, with metrics now better than the old app in key areas like setup and connectivity. Another challenging area for Sonos were with the launch of its Ace headphones, with slower than expected momentum and increased competition and discounting from established players.

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