Sonos Acquires Voice Assistant Startup Snips for $37.5 Million

The company grew its 2019 revenue by 11%, but saw losses rise in Q4 due to increased R&D spending

Sonos Q4 Results: Revenue, Losses Grow, Company Buys Voice Startup
Janko Roettgers / Variety

Smart speaker maker Sonos is getting ready to take a more active role in voice control: Sonos announced the acquisition of Paris- and Tokyo-based voice assistant startup Snips Wednesday. Snips had been developing a platform to launch dedicated voice assistants for smart speakers and other devices. Sonos spent $37.5 million in cash on the startup, and is gaining a European office with over 50 staffers as well as voice-specific patents through the deal.

Sonos CEO Patrick Spence stressed in an interview with Variety Wednesday that the company wasn’t planning to compete with Amazon’s Alexa or the Google Assistant, which are both available on voice-enabled Sonos speakers. “We are not building an ask-anything assistant,” Spence said. Instead, the goal of the acquisition was to build something a lot more music-specific.

One of the interesting aspects of the technology developed by Snips is that it does a lot of the voice recognition and natural language understanding on the device itself, which means that it doesn’t have to upload voice recordings to the cloud — something that Sonos will take advantage of as it builds out its own voice features. “We can do it with privacy in mind,” Spence said.

A Snips voice assistant demo recorded in September of 2018.

Spence didn’t want to share details on when and how Snips technology will find its way to Sonos products just yet. His remarks did suggest that an emphasis on privacy could be part of the appeal to customers who want voice control, but don’t trust companies like Amazon and Google with their voice recordings.

“It’s an option we want to provide customers,” Spence said. “Freedom of choice has been a big part of our message.”

Sonos announced the acquisition in conjunction with the release of its latest quarterly earnings report, which showed continued revenue growth, but also rising costs weighing on the company’s earnings. In its fiscal fourth quarter, which ended September 30, Sonos generated $294.2 million in revenue, compared to $272.9 million during the same quarter a year ago. Net losses increased from $1.7 million a year ago to $29.6 million during fiscal Q4 of 2019. This equals losses of $0.28 per share.

Analysts had expected losses of $0.21 per share on revenue of $289.4 million. Spence said that a lot of the quarterly cost increases were driven by investments into research and development, which included opening an office in San Francisco and hiring a significant portion of the engineering staff of the failed robotics startup Anki. “We saw a lot of new opportunities ahead,” Spence said about the company’s R&D roadmap.

During its fiscal full year of 2019, Sonos sold a total of 6.1 million speakers and accessories. The company added 1.7 million new households to its customer base during the 12 months ending September 30, and is now in over 9 million homes. These Sonos households own about 2.9 of the company’s speakers on average — up from an average of 2.8 a year ago.

That may sound like a small increase, but for Sonos, it’s significant: Existing customers registered 37% of all products bought in fiscal 2019. Company executives have been arguing for some time that Sonos owners tend to buy more Sonos speakers over time, further fueling the company’s growth. Spence admitted Wednesday that this part of his company’s story hasn’t been as widely understood by the public market yet. “We haven’t done a good enough job in getting (it) across to investors,” he said.

Looking to existing customers to fuel growth is also one of the reasons for the company’s partnership with Ikea, which has resulted in the furniture giant selling two smart speakers powered by Sonos software and components in its stores.

On Wednesday, Sonos revealed that Ikea sold 30,000 of those speakers on launch day, but didn’t provide any further metrics. However, Spence said that early numbers suggest that customers who bought a Sonos-powered Ikea speaker go back to buy more. “The Ikea buyer is following the same kind of path as the Sonos buyer,” he said.

Sonos took its first step outside of the home with the launch of its portable Move speaker in September. The company has long hinted at plans to launch other product categories outside of the home as well, and executives said in their letter to investors Wednesday that this would open “Sonos up to a significantly expanded market beyond the $18 billion in-home audio market we have participated in to this point.”

In his conversation with Variety, Spence kept mum on what these future products may look like, but he suggested that the company will grow outside of the home through a combination of Ikea-like partnerships and products developed in-house. “You’ll see us take both paths,” he said.