Sonos Added 1.8M Homes in 2020; 47% of Sales Were From Outside US
Sonos had 31.6 million products registered in 10.9 million households worldwide, and added more than 1.8 million new households during fiscal 2020 ended Oct. 3, said the company’s annual report, filed with the SEC Monday. Some 61% of its households had registered more than one Sonos product, and the company estimates customers listened to 10.2 billion hours of audio through its products during the year, up 33% from fiscal 2019. Existing customers were 41% of new product registrations, up from 37% a year ago. “We believe that we have yet to fully realize the lifetime value of our customer base,” it said.
The company has 92% share of the wireless speaker category and is distributed in over 50 countries; 47% of revenue in fiscal 2020 generated outside the U.S. Its distribution channel comprises 10,000 third-party physical retail stores, including custom installers of home audio systems, and it sells direct to consumers from its website. Due to store closures during the pandemic, DTC sales grew to 21.4% of total revenue vs. 12% in fiscal 2019. The company expects DTC sales to grow: “We intend to continue to build direct relationships with current and prospective customers through sonos.com and the Sonos app to drive direct sales.”
Expansion of the DTC channel could alienate channel partners and lead to lower sales from those partners that “may perceive themselves to be at a disadvantage,” said the company. Conflicts in sales channels could arise “and cause channel partners to divert resources away from the promotion and sale of our products.” The mobile apps it uses to drive traffic to its website rely on app stores from Apple and Google, which sell smart speakers that compete with Sonos speakers. The tech companies may choose to use their marketplaces to promote their products over Sonos speakers “or may make access to our mobile app more difficult.”
Sonos holds over 1,000 patents and is pursuing hundreds of patent applications worldwide. In 2019, Sonos ranked third in electronics in the 1790 Analytics Patent Scorecards study, it said. At fiscal year-end, it had 1,427 full-time employees, 999 in the U.S. Other than in France and the Netherlands, none of its employees is represented by a labor union or covered by a collective bargaining agreement, it said.
COVID-19 issues delayed Sonos’ efforts to fully diversify its supply chain into Malaysia until mid-2021. Its component suppliers and logistics providers were constrained to meet increased demand arising from the pandemic, affecting its ability to meet demand and resulting in higher operating costs that may continue. “While the duration and severity of the economic impacts of COVID-19 are unknown, it is possible that such economic impacts may be prolonged and continue beyond the development of any vaccines or therapeutics,” said the company, citing the possibility of an adverse global economic market that could cause high levels of unemployment, decreased consumer confidence and lower discretionary spending.
Sonos’ current agreement with Amazon allows it to disable the Alexa integration in Sonos’ voice-enabled products with limited notice. “We cannot assure you that we will be successful in establishing partnerships with other companies that have developed voice-control enablement technology or in developing such technology on our own,” it said. If voice technology partners don’t maintain integration with Sonos products, or seek to charge for integration, “or if we have not developed alternative partnerships for similar technology or developed such technology on our own, our sales may decline, our reputation may be harmed and our business and operating results may suffer.”
The company could incur higher operating expenses if network operators restrict access to its service over their networks, it said. If ISPs create tiers of service -- and charge Sonos or prohibit it from being available through certain tiers -- business would be affected. ISPs have in the past attempted to implement usage-based pricing, bandwidth caps and traffic shaping or throttling, it said: If ISPs charge Sonos customers “in direct relation to their consumption of audio content, our ability to attract and retain customers could be impaired.”
Sonos may look to expand beyond its core sound systems and develop products with wider applications outside the home, such as commercial or office, it said. Such expansion would require “substantial additional resources.” It could have less familiarity with consumer preferences for such products and could have a harder time attracting new customers.