Lost 7% of Value in After-Hours Trading
Bloomberg News reported late on Monday that Apple is dropping Sonos [NASDAQ: SONO] and other non-Apple branded products from their stores. The news of Sonos losing such a major customer caused their stock to derail in after hours trading, down almost 7% in value at one point. On Tuesday, Sonos stock price closed down 3.2% as Wall Street digested the news.
See why Apple stores are dropping Sonos…
While Sonos shares closed down 3.2% at yesterday’s close, the stock has continued to decline on Wednesday, dropping more than another 1½% to close at $14.31/share. Note that the Dow moved up almost 2% in value on Wednesday, so Sonos is well out of step with the market overall.
In doing a store check, Bloomberg discovered that Apple stores had removed all third-party branded headphones and wireless speakers from Apple Stores. That not only affects Sonos, but Bose, Logitech, and Ultimate Ears branded products as well.
Why is Apple Doing This?
Why is Apple doing this? According to the Bloomberg report, the company is about to launch an expanded line of Apple- and Beats- branded audio products that will be the focus of their store merchandising. Beats, as I’m sure you will recall, was purchased by Apple for $3.2 billion back in 2014.
For years, Apple Stores have carried an at-times wide variety of third-party brands to fill out the assortments in their stores and to meet more of their customers’ needs. However, as their parent company expanded into more product segments that competed with these other brands, they were often unceremoniously pulled from the stores with little or no notice.
It Has Happened Before
For example, at one point Apple sold an assortment of the popular Fitbit Inc. wearable fitness products. Then, in 2014, the line was pulled from the shelves and no longer offered in their online store. What precipitated that move? The parent company went on to launch the Apple Watch, which has a fitness application as well.
Apple tells Bloomberg that it regularly changes assortments as new third-party accessories are released and/or the needs of their customers change (as in, they don’t need non-Apple versions?). Apple claims it continues to offer “a curated group of third-party accessories” that help customers get more out of their Apple devices.
Sonos Refused to Comment
Bose has confirmed that Apple no longer sells its products. Ultimate Ears told Bloomberg that Apple said, “They will no longer carry third-party speakers at retail from September onwards.”
Sonos refused to comment, referring Bloomberg to Apple for comments.
In the past, the company has pulled other products from their shelves, including Bowers & Wilkins and Bang & Olufsen. In the case of B&O, that exit took place earlier this year. However B&W was dropped years ago.
What’s Left? All Apple with a Sprinkling of Beats
On Monday, Bloomberg found only Apple headphones (AirPods and AirPods Pro) and Beats headphones. The only smart speakers were Apple’s own HomePod and Beats Pill+ speaker.
The only non-Apple products was a Pioneer conference room speaker. As the report notes, Apple has nothing that competes with that.
Learn more about Apple products by visiting: www.apple.com.
Thank you Ted, this is interesting in many ways. There is no doubt that Sonos has made beautifully engineered high performance products that people like. Kudos to them on that front. Despite some market policies that many may not like, they have made great strides and sure sell a goodly amount of audio.
That being said, this is also a firm that has never shown a profit. While you have covered their “wins” versus Denon and recently Lenbrook, it is clear as a public firm that neither of these has moved the profit window. The Denon agreement came just before the public offer, so we may be able to guess it was not a very punitive arrangement.
Now we see Sonos engaged with Google. This is certainly a horse of another color. As we read today, Google is now going to the Supreme Court in their matter with Oracle after 10 YEARS. Unlike the two other firms they are facing a giant that will litigate the matter for eternity if needed. We refer as well to Apple v Samsung, Apple v Virtnex etc.
Now a lot of what has been driving Sonos stock has been the promise of patent revenues, or alternatively the idea that either Amazon, Google or perhaps Apple would buy them rather than face this. However, this development you note here sort of puts that into perspective.
It is clear that Apple will not buy them, they are launching more of their own goods. It seems the same for both Amazon and Google, both of whom also launched new goods aimed at much more mass markets than Sonos does.
Now it is clear that patent cases have unclear outcomes, cost a lot to litigate and take a long time. However, it also seems that the idea of buying Sonos by these firms is also off the table for now. Both of these things can change, but in the meantime this means SONO is valued for its sales growth and profit.
Sonos sales growth is another miss, and they are losing money still. It is no surprise the stock is down, and we may well see it go down to its historic lows once more. They seem well funded so no near term effect but the thesis driving the stock up seems shot for now.
With most of their home theater products out of stock until late in this month or late in November, Q4 is going to come in at what I am calling a HUGE SUCK level..
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