Sonos Double Downgraded as Goldman Sees Slump in Speaker Demand

Goldman Sachs analysts double downgraded Sonos to sell, expecting demand in the speaker producer's industry to drop by half during the coronavirus shutdown.
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Sonos  (SONO) - Get Report shares declined in an up market, as Goldman Sachs double downgraded the speaker company to sell from buy.

“We now expect a severe reduction in smart-speaker demand, with Sonos products generally at the top end of the pricing,” Goldman analysts, led by Rod Hall, wrote in a report. The coronavirus pandemic obviously plays a role in that.

“We are assuming that demand declines by 50% year-on-year during the shutdown months and that year-on-year growth rates improve in the second half of fiscal 2020 [ending Sept. 28] and first half of fiscal 2021,” the analysts said.

For the fiscal third quarter of 2020, ending June 28, the analysts forecast a 39% decline in Sonos sales, close to the 38% slide they expect in iPhone  (AAPL) - Get Report revenue for the quarter. Many iPhone users deploy Sonos speakers.

The analysts slashed their fiscal 2020 revenue estimate by 18% and the 2021 estimate by 24%.

“We continue to believe that Sonos is a strong brand in the smart-speaker category and expect its household penetration to increase over time,” they wrote.

“However, we are concerned that near-term demand impact will be more material than current consensus expectations and that recovery will be slower in 2021.”

The analysts sliced their share-price target to $7.50 from $20 previously. The stock has dropped much further than the overall market this year, “due to product end-of-life issues, litigation and covid-19 related uncertainty,” they said.

Sonos shares have dropped 45% year to date, compared with a 12% slide for the S&P 500. 

Sonos recently traded at $8.77, down 5.6%. The S&P 500 was up 1.76%.