Sonos (NASDAQ:SONO), the wireless speaker company known for its smart speakers, has been downgraded to ‘Neutral’ from ‘Buy’ by analysts at Bank of America (BofA) Securities due to ongoing softness in consumer electronics spending.
In a note to clients, the BofA analysts also lowered their price target to $12, from $20, citing the long replacement cycle of home audio products, weak housing turnover, and Sonos (NASDAQ:SONO)’ elevated inventory and promotions.
The analysts noted that spending on consumer electronics and hobbies was down 10% year-over-year in Sonos’ fiscal fourth quarter and turned negative on a four-year basis for the first time since the beginning of the COVID-19 pandemic.
Channel checks further confirmed the slowdown, with several retailers the analysts spoke with calling out softness in big-ticket consumer electronics.
Consumer electronics retailer Best Buy recently stated that home theater has the longest replacement cycle in consumer electronics, the analysts added.
“We expect it will take several quarters, if not years, for home audio sales to rebound post-pandemic given their long replacement cycle,” they wrote.
“We previously thought Sonos would be immune from industry headwinds given its position at the upper end of the market, but we're now seeing signs that its premium pricing is cracking.”
The analysts also noted that Sonos’ inventory days expanded to 115 in its fiscal 3Q, up from 62 in 3Q 2022. The company recently discounted one purchase of up to $2,000 to select existing Sonos users by a hefty 40%, following a longer-term trend towards more promotions as demand waned since 2021.
“Although we're more cautious on SONO's near-term earnings given macro/industry softness, we remain bullish on the company's long-term growth potential as a leading innovator in wireless audio,” the analysts concluded.
Sonos’ shares were down 5.4% at $10.66 in early afternoon trade in New York.
Contact the author at stephen.gunnion@proactiveinvestors.com