Sonos's stock dinged as BofA ends bullish call

By Emily Bary

Analyst worries about housing trends and weak consumer-electronics spending

A BofA Securities analyst sounded caution on shares of Sonos Inc. Tuesday, downgrading the stock amid concerns about promotional activity and weakness in the consumer-electronics market.

Analyst Jason Haas highlighted "continued softness in consumer-electronics spending, the long replacement cycle of home audio products, weak housing turnover, and [Sonos's] elevated inventory and promotions" as he lowered his rating on the stock to neutral from buy and cut his price objective to $12 from $20.

Shares of Sonos (SONO), which makes smart speakers and other home-audio products, were off about 7% in morning action Tuesday.

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Haas previously was more upbeat about Sonos's resilience given that the company plays toward higher-end shoppers, but he's "now seeing signs that its premium pricing is cracking."

He called out sharp growth in inventory days as of the company's fiscal third quarter relative to the same quarter in 2019. Additionally, Sonos recently offered a hefty discount to certain existing Sonos owners.

"This follows a longer-term trend towards more promotions as demand has waned since 2021," Haas wrote.

He's not so sure that demand will rebound quickly.

"We expect it will take several quarters, if not years, for home audio sales to rebound post-pandemic given their long replacement cycle," he noted. "Best Buy recently stated that home theater has the longest replacement cycle in consumer electronics. Weak housing turnover from high interest rates will also likely push out a recovery in demand."

In the meantime, postpandemic, consumers continue to value live experiences over home entertainment, Haas said.

Sonos shares have dropped 38% so far this year.

-Emily Bary

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11-07-23 1127ET

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