Sonos (SONO)

Audio technology Sonos company (NASDAQ:SONO) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 12.7% year on year to $287.9 million. Its GAAP loss of $0.31 per share was 29.2% below analysts’ consensus estimates.

Company Overview

A pioneer in connected home audio systems, Sonos (NASDAQ:SONO) offers a range of premium wireless speakers and sound systems.

Consumer electronics companies aim to address the evolving leisure and entertainment needs of consumers, who are increasingly familiar with technology in everyday life. Whether it’s speakers for the home or specialized cameras to document everything from a surfing session to a wedding reception, these businesses are trying to provide innovative, high-quality products that are both useful and cool to own. Adding to the degree of difficulty for these companies is technological change, where the latest smartphone could disintermediate a whole category of consumer electronics. Companies that successfully serve customers and innovate can enjoy high customer loyalty and pricing power, while those that struggle with these may go the way of the VHS tape.

Sonos's primary competitors include Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Samsung (KRX: 005930), and private company Bose.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Sonos’s sales grew at a weak 1.7% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Sonos’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.6% annually.

This quarter, Sonos reported year-on-year revenue growth of 12.7%, and its $287.9 million of revenue exceeded Wall Street’s estimates by 3.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Sonos’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging negative 3.3% over the last two years. Unprofitable consumer discretionary companies that fail to improve their losses or grow sales rapidly deserve extra scrutiny. For the time being, it’s unclear if Sonos’s business model is sustainable.

Sonos’s operating margin was negative 12% this quarter. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sonos’s earnings losses deepened over the last five years as its EPS dropped 15.8% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, Sonos’s low margin of safety could leave its stock price susceptible to large downswings.

In Q3, Sonos reported EPS of negative $0.31, up from negative $0.44 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Sonos to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.52 will advance to negative $0.25.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Sonos has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, subpar for a consumer discretionary business.

Sonos broke even from a free cash flow perspective in Q3. This result was good as its margin was 20.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Sonos historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10.2%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Sonos is a well-capitalized company with $227.5 million of cash and $53.29 million of debt on its balance sheet. This $174.2 million net cash position is 8.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Sonos blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 8.5% to $14.99 immediately after reporting.

Updated: December 3, 2025 at 10:09 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Sonos.

We cheer for all companies serving everyday consumers, but in the case of Sonos, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Sonos’s P/E ratio based on the next 12 months is 20.9x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $17.85 on the company (compared to the current share price of $18.91), implying they don’t see much short-term potential in Sonos.