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Sonos Sold Close to $500 Million in Smart Speakers During Holiday Quarter, Posts Record Profit

Smart-speaker maker Sonos had a very good holiday quarter: The company booked revenues of $496 million during its fiscal first quarter of 2019, which ended on Dec. 29. The company also had the most profitable quarter in its history, bringing in $61.7 million of net income, or earnings per share of $0.55.

Both number surpassed analyst expectations, who had expected the company to post revenues of $490 million, and earnings of $0.41 per share.

However, declining sales of some of its speaker models and a trend toward cheaper devices apparently still spooked investors, who sent the company’s stock down in after-hours trading. Its share price briefly sunk by as much as 15%, only to stabilize down 5% later in the afternoon.

“We made good progress this quarter towards our goal of driving sustainable, profitable growth over the long-term,” said Sonos CEO Patrick Spence in his letter to investors on Wednesday.

Sonos attributed much of that success to the growth to its home theater products, with sales of the Sonos Beam lifting the entire segment 87% in terms of devices sold, while attributing to a 42% growth of home-theater speaker revenues. Interestingly, Sonos now generates nearly as much revenue with home theater speakers as with its other smart speakers.

Sales of its traditional smart speakers were down by 11%, which Sonos attributed to the decision to remove the aging Play:3 speaker from its lineup. Sales of the Play:5 apparently also declined, something the company attributed to the fact that the device isn’t voice-capable. In contrast, activations of the voice-enabled Sonos One speaker were up more than 50% year-over-year.

However, Spence also seemed cognizant of the fact that his company’s speakers were still a lot more expensive than some competing products, writing in his letter to investors:

“We saw voice adoption begin to accelerate in Europe this holiday season, particularly as Google brought the Google Assistant to several European countries. However, similar to last year’s trends in the United States where the overwhelming majority of products were priced below $100, product volumes in Europe were skewed heavily to low-priced speakers.”

The company could have an answer to consumers looking for lower-priced speakers later this year: In August, Ikea will start to sell speaker products powered by Sonos-made electronics and software in its stores.

The Swedish company is expected to pay Sonos licensing and component fees, but the bigger impact could be the added customer base. The furniture giant has thus far kept mum on exact price points, but its speakers are expected to be budget-priced. Add the fact that Ikea has a massive retail footprint, and Sonos could soon see a whole lot of new users — who may ultimately turn to Sonos to add other speakers to their home.

“Through our partnership with Ikea, we’ll be able to reach new homes in new countries at a new price point, with products that integrate seamlessly into the overall Sonos experience,” Spence told Variety on Wednesday.

Speaking of customers: Sonos also used its earnings report to give investors an update on its total install base. Sonos customers had registered nearly 22.7 million products in over 8 million households globally by the end of December, the company disclosed. Over the holiday quarter, Sonos sold a total of 2,384,581 products, which included accessories.

Finally, Sonos also disclosed that its longtime chief financial officer Mike Giannetto will be leaving this year. “Mike has been instrumental in getting us to a place of financial stability and operational excellence,” said Spence in his letter to investors. “He’s built a strong team that will serve Sonos for many years to come.”

Earlier this week, Sonos announced the launch of a new partnership with Sonace, a company known for its in-wall and in-ceiling audio products that are often pre-installed in newly-built homes. As part of that partnership, the two companies will begin to sell Sonos-optimized in-ceiling, in-wall, and outdoor speakers this month.

A speaker that works outside of the home is a first for Sonos, but it likely won’t be the last. Spence has for some time talked about his desire to bring Sonos beyond the home. Bloomberg recently reported that Sonos may even build its own headphones.

The company declined to comment on that report, but Spence hinted in his letter to investors at some upcoming surprises, writing: “We’ve got an exciting year ahead, and as always, we’re working on a few new things that we’re excited to share with the world before too long.”

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