Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. I want
Speaker 1: to talk a bit about Sons. The stock up about
Speaker 1: four and a half percent in today's session. This after
Speaker 1: the latest quarterly update. We were breaking it down yesterday
Speaker 1: after the close. Uh, just a dps revenue beating estimates,
Speaker 1: the company showing it had an ability to overcome those
Speaker 1: supply constraints growing holiday sales. So investors definitely liking what
Speaker 1: they had to say. Well, let's talk to Patrick Spence,
Speaker 1: CEO of Sons, all about it. He joins us on
Speaker 1: the phone from Santa Barbara, California. It's about eighty miles
Speaker 1: north of where we are here in Los Angeles. Patrick.
Speaker 1: How are you good, Tim? How are you? We're doing
Speaker 1: really well. Thanks. Hey. Last time we spoke to you
Speaker 1: about a quarter ago, Uh, you were confident, but I
Speaker 1: think it's fair to describe you as a little nervous
Speaker 1: about the holiday quarter and making sure that you had
Speaker 1: enough supply to meet demand for the holiday shopping season.
Speaker 1: Here we are a few months later. Did you have
Speaker 1: enough apply to me demand? We did not. You know,
Speaker 1: we successfully navigated probably the most challenging UM supply chain
Speaker 1: conditions I've ever seen in my career. H and we
Speaker 1: got more to our customers UM than we had planned
Speaker 1: and exceeded expectations. But there was so much demand that
Speaker 1: we couldn't still and we've you know, continued to January
Speaker 1: and February to continue to try and fulfill that demand
Speaker 1: for our customers. UM. And you you nailed it him,
Speaker 1: I mean, were going into the quarter, we knew it
Speaker 1: was gonna be a tough one. UM. We had provided
Speaker 1: that color to everybody. And I am so proud of
Speaker 1: the team's effort because we we really navigated well considering
Speaker 1: all of the challenges that we had. UM, we did
Speaker 1: better than than expectations. So I feel good about that,
Speaker 1: but also feel good about putting that quarter behind us.
Speaker 1: I think a lot of people feel good about us.
Speaker 1: Is it really behind us? Patrick? Is it really behind us?
Speaker 1: Are there signs that you're seeing that it's getting better? Oh? Absolutely, Carroll.
Speaker 1: So you know, the UM I definitely feel like it
Speaker 1: was the low point again for us. And you know,
Speaker 1: as we there's a variety of different components, and you know,
Speaker 1: every situation is a little different in terms of every
Speaker 1: company you'll hear from. I saw fox On today as well,
Speaker 1: kind of giving a similar perspective, which is, um, we're
Speaker 1: by no means out of the woods, but that for
Speaker 1: us felt like, um, you know, the tightest period, and
Speaker 1: you know, we we stay very close with UH. We
Speaker 1: both have the demand signals from our customers obviously with
Speaker 1: a big direct to consumer business and all of our
Speaker 1: great channel partners, but we as well see our products
Speaker 1: lighting up every single day, so we have a really
Speaker 1: good handle on it. Sewer demand that remains very strong
Speaker 1: for our customer base. And then on the flip side,
Speaker 1: you know, we're working very closely with our supply chain
Speaker 1: partners to make sure that we can deliver on this.
Speaker 1: So we're and it's not like we will have everything
Speaker 1: sorted out in this quarter, but it definitely gets better
Speaker 1: through the year. UH, And that's why we felt confident
Speaker 1: in raising the midpoint of our guidance. How how do
Speaker 1: you quantify the opportunity loss in the most recent quarter.
Speaker 1: Two people going to the website are going to a
Speaker 1: store and seeing that Sons wasn't in stock, and instead
Speaker 1: of buying that Sons speaker for somebody for a gift
Speaker 1: they went and bought something else for that person, versus
Speaker 1: somebody buying for themselves, maybe waiting a few weeks and saying, Okay,
Speaker 1: I can buy this for myself in January or February.
Speaker 1: How do you quantify that? So a couple of things.
Speaker 1: One is, um, we're such a considered purchase, right and
Speaker 1: you know, and it really goes to our model. You know,
Speaker 1: our existing customers are our number one generator of new customers,
Speaker 1: and so they're telling their friends and family how much
Speaker 1: they love it and they understand that there's nothing quite
Speaker 1: like it. And then for more tactical mechanics perspective, we
Speaker 1: watch very closely the orders from our direct consumer business,
Speaker 1: um you know, and understand and people have been willing
Speaker 1: to wait, Sam like they've been willing to wait you know,
Speaker 1: eight ten weeks for product at times, and we watch
Speaker 1: whether whether people cancel or not and going through that,
Speaker 1: um you know. And we also look at and we
Speaker 1: triangulate that with third party market share reports to understand
Speaker 1: how we're doing. And since this has been a lot
Speaker 1: of industry wide uh you know, supply chain challenges, you know,
Speaker 1: I feel like we're coming out of this and We've
Speaker 1: navigated it better than anyone in our industry, that's for sure, UM.
Speaker 1: And we're in a strong position and you know, we'll
Speaker 1: continue to work hard at delivering to all those customers
Speaker 1: that have been waiting, UM and try and get back
Speaker 1: in a situation where you don't have to wait up Patrick,
Speaker 1: How how big is the backlog? UM? You know that
Speaker 1: it changes every single day, uh, in terms of with there,
Speaker 1: but it's it's significant in terms of what we're working through. UM.
Speaker 1: I certainly hope that by the end of our fisical two, UM,
Speaker 1: we're through at all. But we said a couple of things. One,
Speaker 1: there's the backwarders that we have today, and then we
Speaker 1: don't have our channels uh filled you know, back up
Speaker 1: to where they need to be, so you know, you
Speaker 1: might walk into a best Buy or a Costco and
Speaker 1: not be able to um, you know, by a Sonos
Speaker 1: right in that particular moment. So we've worked to do
Speaker 1: to get those Channel three stocked and then we have
Speaker 1: work to do to deliver back to our customers as well.
Speaker 1: So UM, it's significant. Hey, Patrick, Caroline, I've talked about
Speaker 1: this a lot on air, but we both have Sono
Speaker 1: systems at home and we do like them full disclosure.
Speaker 1: But how do you get recurring revenue from people like
Speaker 1: us because we don't necessarily need any new speakers. Of course,
Speaker 1: you need new speakers tim over time. There, I am
Speaker 1: sure there's a room that you haven't added it too.
Speaker 1: But look, you know, going going back to kind of
Speaker 1: my husband, you can always have more speakers. In fact,
Speaker 1: you know, it really goes back to our business model,
Speaker 1: you know, and we're not a one and done kind
Speaker 1: of purchase, whereas you know some products are. And so
Speaker 1: you know you saw last year of our sales came
Speaker 1: from existing customers coming back and adding another product, and
Speaker 1: we also shared that the average number of products per
Speaker 1: customer moved up to three and we think that can
Speaker 1: go over time to four to six right as well.
Speaker 1: And so we actually have an annuity. You know, we've
Speaker 1: been shipping products in two thousand and five. They were
Speaker 1: part of that cohort that actually came back and bought
Speaker 1: products last year. Yeah, Patrick, hang on for a second.
Speaker 1: We're going to come back and continue with Patrick Span
Speaker 1: CEO at Sonos on the phone from Santa Barbara, California.
Speaker 1: We'll be back with him in just a moment, I
Speaker 1: want to get right back to Patrick Span, CEO at Sons,
Speaker 1: joining us on the phone again from Santa Barbara. Patrick.
Speaker 1: We talked a lot about housing on the show, and
Speaker 1: I would imagine that new housing and household formation and
Speaker 1: people moving over the last couple of years to bigger
Speaker 1: homes during the pandemic really helped out sales of Sonos speakers.
Speaker 1: Today we saw that US mortgage rates jumped to three
Speaker 1: point six nine percent, the highest since January. That is,
Speaker 1: of course pre pandemic. I'm wondering how you're thinking about
Speaker 1: or planning for your potential slow down in real estate
Speaker 1: as home prices get more expensive and mortgage rates continue
Speaker 1: to climb. You know, I think them we've kind of
Speaker 1: looked at the data, uh, you know, eight different ways
Speaker 1: from Sunday to to look at any macro trends and
Speaker 1: and and how it embaked our sales and how it
Speaker 1: has the last seventeen years, and there's not really you know,
Speaker 1: we haven't seen kind of like a macro factor that
Speaker 1: we have a correlation to. And I think what I
Speaker 1: chalk it up to, quite frankly, is that, um, we're
Speaker 1: still pretty small in a grand scheme of things right.
Speaker 1: We're you know, we'll do two billion dollars this year
Speaker 1: in revenue in a market that the global audio markets
Speaker 1: about uh eighty nine billion dollars and we're maybe in
Speaker 1: about ten percent of the homes that UM we think
Speaker 1: we address in the more affluent home sector. And so
Speaker 1: you know, adding some son knows at you know, everything
Speaker 1: is under a thousand dollars. You know, in terms of
Speaker 1: what our set is goes from two hundred to about
Speaker 1: eight d um. You know, I think are the things
Speaker 1: that we've we've seen kids you need to sell in
Speaker 1: prior um you know, macro weak conditions, UM, and we
Speaker 1: see in strong conditions as well. And all those new
Speaker 1: customers we added during the last couple of years, you know,
Speaker 1: if history serves, they'll continue to add products over the
Speaker 1: next couple of years, no matter what happened. So we're optimistic. Hey,
Speaker 1: you know, you go to your website, you see the
Speaker 1: array of products which also you know have Sonus Radio
Speaker 1: and content. We're getting ready to do the Power Players
Speaker 1: Summit tomorrow and talking to a lot of team owners
Speaker 1: of folks that are making investments in all kinds of
Speaker 1: businesses that play into the world of sports. That I'm
Speaker 1: gonna talk with Stephanie Nickman over WWE, person who's key
Speaker 1: in terms of sports for Amazon. They all talk about content, content, content.
Speaker 1: How important is that as you think about how you
Speaker 1: continue to build out the Sonus array of products. We
Speaker 1: want to be the one that can serve up all
Speaker 1: that content in a way that's really easy for customers
Speaker 1: to access. And so we give you know, that's our differentiator,
Speaker 1: right is really being open to every music service, every
Speaker 1: voice service, every radio service that's out there, and so
Speaker 1: our goal is to make it really easy and really
Speaker 1: accessible so that people can quickly find, you know, what
Speaker 1: they want to listen to. And so that's where we're
Speaker 1: going to stay focused and really ride the wave of
Speaker 1: all that amazing content, not only on audio quite frankly,
Speaker 1: but as well in the video right with their sound bars.
Speaker 1: So we benefit from you know, Netflix putting twenty billion
Speaker 1: dollars in the content and Disney putting through three billion
Speaker 1: dollars into content. So all of that is key and
Speaker 1: those investments are important tail wins to hard business. That's
Speaker 1: what was gonna say, move the needle for you guys.
Speaker 1: Patrick absolutely one of the one of the big macro
Speaker 1: trends is what we call Hollywood at home, right, So
Speaker 1: all of this viewing of all this great content that's
Speaker 1: coming into our living rooms and you want to hear
Speaker 1: that the way you would hear it in the theater.
Speaker 1: And so that's what we do when it comes to
Speaker 1: your living room. Hey, I'm want to talk product development
Speaker 1: here and try to understanding the product pipeline as you
Speaker 1: think not just in the next couple of years, but
Speaker 1: five ten years from now. What do what do son
Speaker 1: speakers look like in the next decade um? You know
Speaker 1: that it's not just speakers, right, and so as we
Speaker 1: think about where we play, you know, obviously we have
Speaker 1: the Idea partnership. We UM have an Auty partnership. So
Speaker 1: we're starting to show up in cars and that's got
Speaker 1: a great root you um from one of the definitive
Speaker 1: audio reviewers. So I would say like for us, and
Speaker 1: my goal is that we're you know, we're the sound
Speaker 1: experience provider in all aspects of your life. And you know,
Speaker 1: we started over the course of the pandemic, we've started
Speaker 1: to go outside the home with two new products, Roman Move,
Speaker 1: so you know, we're expanding beyond UM and we have
Speaker 1: a lot of room in that whole eighty nine billion
Speaker 1: dollar global audio market, so you'll see a lot more
Speaker 1: products from Sonos, you know, upping the game in existing categories,
Speaker 1: but as well going to new categories for sure. Well.
Speaker 1: Always great to check in with you and hear what's
Speaker 1: going on. And as we said, both Tim and I
Speaker 1: full transparency are users. Um, but really great to hear
Speaker 1: what's going on. Patrick, Thank you so much. Be well,
Speaker 1: stay safe. Patrick Spencey's the CEO of Sonas they did
Speaker 1: come out with their latest quarterly update. We were talking
Speaker 1: about the numbers last night, showing good demand, ability to
Speaker 1: navigate supply. These are what analysts are saying post their results.
Speaker 1: It's funny. I think back to my first experience understanding
Speaker 1: the supply chain constraints as a consumer was when I
Speaker 1: went to buy that Sonos Move speaker for my dad.
Speaker 1: I think it was for Father's Day, for his birthday, um,
Speaker 1: but that was the new product that about last year.
Speaker 1: Bought it online, uh, and then saw when I was
Speaker 1: checking out it was like, you know, eight to twelve
Speaker 1: weeks away for shipping or something like that. I was thinking,
Speaker 1: what is going on here? And that was my first
Speaker 1: foray into the supply chain pain. That's really interesting. We
Speaker 1: got ours during the pandemic, like early on because we
Speaker 1: were spending time outside and uh we were lucky. I
Speaker 1: think just got it ahead of that.