Sonos shares jump on debut in turbulent time for tech

Sonos jumped on its market debut on Thursday, as investors were lured to the US maker of smart speakers whose shares were priced lower than expected during a period marked by big swings for the tech sector.

Sonos, whose products are popular among audiophiles, sold shares at $15 (€12.90) apiece on Wednesday, shy of the $17 to $19 a share that the company had initially aimed for. Within the first few hours of trading on Thursday, the stock was up 18 per cent at $17.73, giving the company a market value of $2.1 billion on a fully diluted basis.

Based in Santa Barbara in southern California, the company had been targeting a valuation of $2.5 billion-$3 billion, people familiar with the matter had said earlier this year.

Despite its being a strong brand, some investors remain worried about the threat of competition from much larger rivals such as Amazon, Google and Apple. The advent of virtual assistants such as Alexa and Siri has helped to popularise "smart speakers", but Amazon and Google have largely sold their devices for far less than the upmarket product range offered by Sonos.

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"I think our profile will rise as a result [of the IPO] and we use it as an opportunity to get our brand further established as we shift into the next phase," Patrick Spence, the chief executive of Sonos, said of the timing of the IPO. "Smart speakers and this whole idea of things we've invented around multi-room audio are becoming even more popular. There is a lot of energy in the sector. It's a good time to show everybody that the company that invented this space is ready to go into the second phase."

Working capital

Early investors, including private equity firm KKR, reaped $125 million of the $208 million raised in the initial public offering, while $83 million of the proceeds go to Sonos. The company will use the funds for working capital, potential acquisitions and investments.

Sonos claims it can thrive as a neutral party in the competitive landscape of Silicon Valley

The failure of Sonos to sell shares within the range they had initially aimed for came as renewed fears of a trade war between the US and China – as well as tumbling valuations for tech companies such as Facebook, Netflix and Twitter in recent weeks – rattled markets.

When Sonos published its full prospectus for investors earlier this month, the company revealed it had 18 per cent revenue growth in the six months to March, up from 10 per cent in the financial year that ended in September 2017.

Sonos claims it can thrive as a neutral party in the competitive landscape of Silicon Valley, by offering more choice and flexibility to consumers, as well as better sound quality than most of its rivals. Its devices support Alexa and, soon, Google’s Assistant, as well as dozens of music streaming services, including Apple Music, Pandora and Spotify.

“I continue to believe that our strategy is the right one,” Mr Spence insisted. “We are most closely aligned to what is in the interests of consumers. They know we will future-proof them against any new services that are coming out.”

He said Sonos sees a “a huge opportunity” with the 175 million people who are paying for streaming music. – Copyright The Financial Times Limited 2018