Sonos, Inc. (NASDAQ: SONO) is a company which is engaged in providing home sound systems. Its product profile includes speaker sets and other accessories like boost, mounts, stands, cables and networking. Geographically, the company operates in the Americas, Europe, the Middle East and Africa, and the Asia Pacific. SONO generates a majority of its revenue from the Americas region.

Key Highlights

• Robust financials:The company is continuously improving its financial performance on the sequential basis, which is a key positive. In FY21 (ended October 02, 2021) the company clocked record revenue of USD 1,716.7 million, an increase of 29.44% compared to USD 1,326.3 million in FY20 (ended October 03, 2020), while its bottom line transformed from net losses to net positive, which is a significant advantage.

Source: Company Filing

• Sold more products and improved Adjusted EBITDA: In the recent financial numbers the company managed to increase its total number of products sold to 6.5 million in FY21 against 5.8 million in the previous corresponding period. We believe this higher number of products sold helped the company to elevate its Adjusted EBITDA to USD 278.5 million in FY21 vs. USD 108.5 million in FY20, respectively. Its Adjusted EBITDA margin also improved to 16.2% against 8.2% in pcp.
• Higher cash from operations: In fiscal 2021, the firm generated USD 253.2 million in net cash from operating activities, up from USD 161.9 million in the previous equivalent period. The main factors for the increased cash from operations were improvement in net income of USD 158.6 million and non-cash adjustments of USD 92.1 million.

Financial overview of FY 2021 in ‘000 of USD

Source: Company Filing

• In fiscal 2021, the company's total sales climbed by USD 390.4 million, or 29.4%, to USD 1716.7 million, up from USD 1326.3 million in fiscal 2020. Strong overall demand across all of its product categories, as well as the success of new product launches, drove the growth.
• Gross profit for the period stood at USD 809.9 million, much higher compared to USD 571.9 million in the previous corresponding period.
• The company posted operating income of USD 154.9 million in FY21 against a loss of USD 27.2 million in FY20.
• On the back of higher revenue and controlled expenses, the company transformed from losses to net income at USD 158.5 million.

Risks associated with investment

The company is dependent on a limited number of contract manufacturers to manufacture its products, furthermore, to remain competitive and stimulate consumer demand, it must successfully manage frequent new product introductions and transitions. Other key risks are high competition, forex volatility and supply chain issues.

Valuation Methodology (Illustrative) Price to Cash Flow Based

Stock recommendation

The company has recently released several products in a variety of audio categories, and it plans to introduce new products that appeal to a wide range of consumers, as well as bring the differentiated listening platform and experience to all of the places and spaces where its customers listen to the wide range of audio content available. Furthermore, the company's products are sold in over 50 countries, with revenue from outside the United States accounting for 48.1% of total revenue in fiscal 2021. We believe that the company's worldwide expansion will be determined by its capacity to generate sales from a global population of consumers, for which it will build foreign distribution channels and diversify its partner ecosystem to appeal to a wider audience. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the closing price of USD 29.99 as of December 30, 2021.

One-Year Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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