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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.