WEBVTT - Sonos CEO on New Customers, New Products 0:00:00.040 --> 0:00:03.600 You're listening to Bloomberg Business Week with Carol Messer and 0:00:03.680 --> 0:00:08.119 Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. The bulk 0:00:08.160 --> 0:00:10.080 of earnings is over, but we're still getting to do 0:00:10.200 --> 0:00:12.720 a few of them, and among them was Sonas we 0:00:12.800 --> 0:00:15.440 talked about them, stock was up about three percent, up 0:00:15.440 --> 0:00:18.040 as much as six percent at its times today, settling 0:00:18.079 --> 0:00:20.160 though on this Thursday with a three percent gain. They 0:00:20.160 --> 0:00:22.840 reported earnings last night after the Clothes. Among the headlines 0:00:22.840 --> 0:00:26.440 that stood out fourth quarter revenue beat estimates and analysts 0:00:26.480 --> 0:00:29.240 finding the print to be solid. So let's see what 0:00:29.480 --> 0:00:32.080 our next guest has to say. He's President CEO of Sons. 0:00:32.120 --> 0:00:34.600 Patrick Spence is back with us and so delighted to 0:00:34.640 --> 0:00:38.159 have you in our interactive broker's studio. Welcome, thank you, 0:00:38.280 --> 0:00:40.400 it's great to be back. Yes, how are you talk 0:00:40.440 --> 0:00:42.000 to us about the business and how things are going. 0:00:42.120 --> 0:00:45.040 You know, we've seen things stabilized, so we obviously took 0:00:45.040 --> 0:00:47.360 a hit back in June in terms of kind of 0:00:47.360 --> 0:00:51.040 the trajectory in our business. And so then post pandemic, 0:00:51.200 --> 0:00:53.720 our continuation of a post pandemic reason, I think was 0:00:53.760 --> 0:00:56.040 more macro economic in terms of just generally like what 0:00:56.080 --> 0:00:58.200 consumers were doing and in the summer traveling and all 0:00:58.200 --> 0:00:59.960 of those things. And so yeah, we did a bit 0:01:00.000 --> 0:01:01.720 of a reset at that point, and what we've seen 0:01:01.800 --> 0:01:04.960 in this quarter is we got it right. Our business stabilized, 0:01:05.200 --> 0:01:07.240 and we shared a few data points on the call 0:01:07.280 --> 0:01:10.200 around registrations, which are kind of like the underlying activations 0:01:10.200 --> 0:01:12.640 of new Son No speakers that show in fact, it's 0:01:12.680 --> 0:01:14.800 kind of we're pretty optimistic in terms of where we 0:01:14.840 --> 0:01:17.320 are right now and what we're seeing and so, um, 0:01:17.360 --> 0:01:19.880 it's stable. Uh, And that's kind of the way we 0:01:19.880 --> 0:01:21.959 we've set our guidance as we go forward, and we're 0:01:21.959 --> 0:01:25.360 not expecting, you know, things to get much worse. We're 0:01:25.360 --> 0:01:26.760 not expecting it to get much better. So we're just 0:01:26.800 --> 0:01:28.560 trying to be prudent in this kind of environment. A 0:01:28.640 --> 0:01:30.760 lot of competition in the space. You guys are still 0:01:30.760 --> 0:01:33.080 relatively small, as you point out when you join us, 0:01:33.200 --> 0:01:35.600 you know, every few months, Um, I'm wondering about who 0:01:35.640 --> 0:01:37.480 your customer is. And I think about this in the 0:01:37.480 --> 0:01:41.160 context of what we saw from Walmart Tennis. Well that's 0:01:41.160 --> 0:01:44.720 the thing. Yeah, we all that that's true, but but 0:01:44.760 --> 0:01:47.360 I'm wondering, you know, as you try to grow. You know, 0:01:47.400 --> 0:01:49.440 we see a company like Walmart report results and they 0:01:49.480 --> 0:01:51.920 say that, you know, upper middle class customers are now 0:01:51.920 --> 0:01:54.480 trading down and shopping at Walmart rather than Target. We 0:01:54.520 --> 0:01:57.080 saw that play out this week. Who's your customer and 0:01:57.080 --> 0:02:00.520 are you worried about people trading down to less expensive editors? 0:02:00.800 --> 0:02:02.920 We're not. And I'm watching during a period like this, 0:02:02.960 --> 0:02:04.800 you want to watch market share very closely. And from 0:02:04.840 --> 0:02:07.680 what we're seeing, we're gaining share in this period. Um, 0:02:07.760 --> 0:02:09.800 And I think that speaks to the brand. But but 0:02:09.919 --> 0:02:13.280 we do talk about the more affluent homes that we're in, 0:02:13.520 --> 0:02:15.560 and and again you pointed it out. You know, we're 0:02:15.600 --> 0:02:17.280 so small in the grand scheme of things. We're in 0:02:17.400 --> 0:02:19.240 nine percent of the homes that we think we can 0:02:19.280 --> 0:02:21.520 be in ultimately, so we have a lot of room 0:02:21.600 --> 0:02:23.799 to go. Um, we don't, you know, we don't get 0:02:23.840 --> 0:02:27.320 overly promotional. We kind of approached this in a very sustainable, 0:02:27.520 --> 0:02:30.480 kind of steady way, and so we feel like there's 0:02:30.480 --> 0:02:33.600 lots of opportunity ahead. Um. They'll be obviously ups and 0:02:33.639 --> 0:02:36.480 downs because of the economy, but overall, we feel like 0:02:36.480 --> 0:02:40.120 our customer um is is stable right now from what 0:02:40.160 --> 0:02:42.000 we can see, and so We'll be watching it closely. 0:02:42.360 --> 0:02:44.960 You know, if if things change, will definitely make adjustments 0:02:45.000 --> 0:02:47.120 in our business. But right now, UM, it appears our 0:02:47.120 --> 0:02:49.480 customers are pretty stable. So you're not talking recession or 0:02:49.480 --> 0:02:52.120 thinking recession internally in terms of meetings and saying hey guys, 0:02:52.120 --> 0:02:54.440 we're gonna have to be thinking about this now. We're 0:02:54.480 --> 0:02:57.959 watching it very carefully. UM. Obviously not an economists, so 0:02:57.960 --> 0:03:00.560 I don't know whether recession or not. But it has 0:03:00.600 --> 0:03:02.520 slowed down, you know, it's slowed down. We kind of 0:03:02.520 --> 0:03:05.360 took that that change in June and then, but since 0:03:05.400 --> 0:03:07.760 then it's been stable. So we haven't seen it get worse. 0:03:07.880 --> 0:03:10.240 I seen it get better. Um. I do expect at 0:03:10.240 --> 0:03:11.640 some point it will get better, but I don't know 0:03:11.720 --> 0:03:14.200 if that's twelve months eighteen months, you know, from from 0:03:14.280 --> 0:03:16.320 now as well? Patrick, who's your best customer? Is it 0:03:16.400 --> 0:03:19.200 existing customers like a Tim and myself and others who 0:03:19.240 --> 0:03:21.480 already have Sennis equipment, or is it the new guy? 0:03:21.800 --> 0:03:24.560 So we added one point four million new ones in 0:03:24.560 --> 0:03:26.800 the last twelve months, were up to over fourteen million 0:03:26.840 --> 0:03:30.120 homes now and it's remarkably steady in the sense that 0:03:30.160 --> 0:03:33.480 forty of our sales every year come from our existing 0:03:33.520 --> 0:03:37.200 customers adding more and then the rest of it comes 0:03:37.240 --> 0:03:39.560 from new customers and so and the number one way 0:03:39.760 --> 0:03:42.600 that new customers coming to the system is existing customers 0:03:42.640 --> 0:03:45.160 telling their friends and family. So it's a it's a 0:03:45.160 --> 0:03:47.200 pretty powerful model in that way, and we've got a 0:03:47.200 --> 0:03:49.840 good balance between existing and new. Guilty I said this 0:03:49.880 --> 0:03:51.360 all the time, and I'm guilty of, you know, buying 0:03:51.480 --> 0:03:54.400 gifts sons, gifts from my sister and my dad, who 0:03:54.440 --> 0:03:57.440 are big customers. Hey Patrick, Um, you're not an economist, 0:03:57.440 --> 0:03:58.960 you said, but you've got to make decisions based on 0:03:59.000 --> 0:04:01.400 what you think the economy is to look like. What's 0:04:01.440 --> 0:04:04.520 headcount looking like in three Have you had to pull 0:04:04.640 --> 0:04:06.760 back and lay anyone off? Are you planning to lay 0:04:06.760 --> 0:04:10.640 anyone off? So we focused on sustainable, profitable growth before 0:04:10.640 --> 0:04:13.320 it was fashionable. So you know, we've been profitable for 0:04:13.320 --> 0:04:17.120 four years. Um, you know, we didn't get to what 0:04:17.240 --> 0:04:19.280 I say crazy in terms of hiring. You know, through 0:04:19.279 --> 0:04:22.320 these periods, we've been investing in a very disciplined way. Um, 0:04:22.360 --> 0:04:24.400 so I'd say we're kind of zigging while other zag 0:04:24.400 --> 0:04:27.160 We're still hiring people. I mentioned on our earnings call 0:04:27.240 --> 0:04:30.200 last night that we're looking at expanding into four new categories, 0:04:30.240 --> 0:04:32.920 and so we've been hiring people that help us actually 0:04:33.240 --> 0:04:35.040 do some things and bring some skills we don't have 0:04:35.400 --> 0:04:37.800 UM yet today. So I feel like this is one 0:04:37.800 --> 0:04:40.520 of those times where there's opportunity for us to emerge 0:04:40.560 --> 0:04:44.280 from this period even stronger. UM. And that's why we've 0:04:44.279 --> 0:04:46.000 focused on being profitable and being able to be in 0:04:46.000 --> 0:04:48.640 control of our own destiny. UM. You know, I want 0:04:48.680 --> 0:04:50.359 to talk about innovation, but we'll say that for the 0:04:50.440 --> 0:04:53.120 for the next block. What does worry you? Though you've 0:04:53.120 --> 0:04:54.679 been doing this for a long time with your business. 0:04:54.720 --> 0:04:57.160 I mean, at this point it's it's multiple years, UM, 0:04:57.200 --> 0:04:59.960 You've see different cycles thirty seconds. So what does worry 0:05:00.040 --> 0:05:02.560 you Our own ability to execute and deliver on the 0:05:02.920 --> 0:05:06.760 proms CEOs in presence Davis all the time. Well, it's 0:05:06.800 --> 0:05:08.680 much more about what you can control and what you 0:05:08.720 --> 0:05:10.680 can do, so making sure we bring out I know 0:05:10.680 --> 0:05:13.000 what you mean, but but it really is about our 0:05:13.240 --> 0:05:15.479 ability to get the new products out, you know, be 0:05:15.560 --> 0:05:17.039 able to do the things that we need to do. 0:05:17.120 --> 0:05:20.440 Because we can't control the economy, we can't control the consumer. 0:05:20.480 --> 0:05:23.000 All we can do is make sure that we're showing 0:05:23.040 --> 0:05:26.120 up in the best way possible and adjust accordingly. So 0:05:26.200 --> 0:05:28.440 there's better control over those factors right now. Patrick, In 0:05:28.480 --> 0:05:30.840 terms of supply chains and stuff, Oh, definitely. On supply chain, 0:05:30.880 --> 0:05:32.640 it's gotten much better than it was. You know, last 0:05:32.680 --> 0:05:34.520 year this time we were talking about the inability to 0:05:34.520 --> 0:05:37.920 get any product and people waiting months. So yeah, it's 0:05:37.920 --> 0:05:39.919 gotten much better. All right, Sit tight, just having some 0:05:39.960 --> 0:05:43.120 fun with We're gonna come back with Patrick Spence, CEO 0:05:43.160 --> 0:05:45.320 of Sonas here in our interactive broker studio. I do 0:05:45.360 --> 0:05:47.480 want to talk about innovation and what's in the pipeline. 0:05:47.680 --> 0:05:49.920 It's coming up next on Bloomberg. I want to get 0:05:49.920 --> 0:05:52.080 back to our guest, Patrick Spence, still with us, of course, 0:05:52.120 --> 0:05:54.360 the CEO of Sonas. We've been talking about the most 0:05:54.360 --> 0:05:57.039 recent quarter stock was up about I think three in 0:05:57.080 --> 0:06:00.200 today's session. Um so, Patrick, innovation, how do you think 0:06:00.200 --> 0:06:03.480 about it? In the space? Um, you know, we're playing 0:06:03.480 --> 0:06:05.360 in a few different areas of audio today, so about 0:06:05.360 --> 0:06:09.279 four different categories, and we are always balancing. Do we 0:06:09.320 --> 0:06:11.839 do something new to raise the bar in the existing 0:06:11.880 --> 0:06:14.000 category that we're already playing in, or do we expand 0:06:14.040 --> 0:06:17.680 into a new one? Um? And so we go through uh, 0:06:17.720 --> 0:06:20.840 really an assessment of kind of where our capabilities are 0:06:20.880 --> 0:06:24.200 and the opportunities we see in the market and uh, 0:06:24.240 --> 0:06:26.240 and then we kind of you know, follow our instinct 0:06:26.320 --> 0:06:28.000 quite frankly in terms of okay, we think this is 0:06:28.000 --> 0:06:30.160 somewhere that our customers will want to go with us. 0:06:30.200 --> 0:06:31.919 And so in our story has really been you know, 0:06:31.960 --> 0:06:34.159 software eating audio. So where can we bring our system 0:06:34.160 --> 0:06:38.040 and our software and do something differentiated? Uh, in a 0:06:38.040 --> 0:06:40.520 new space or in the space we're in, like raise 0:06:40.600 --> 0:06:41.880 the bar if you will. So you will see us 0:06:41.880 --> 0:06:44.240 at times bring out things that are new like we 0:06:44.320 --> 0:06:46.400 did with the Rome, like a portable speaker, and into 0:06:46.440 --> 0:06:49.200 a new area or um like we've done with sub 0:06:49.200 --> 0:06:52.000 many recently. Where okay, we're gonna do something different in 0:06:52.000 --> 0:06:54.680 a space we're already in. And we try then if 0:06:54.680 --> 0:06:56.120 we're doing something in the space we're already in, to 0:06:56.160 --> 0:06:58.080 have a good, better, best approach to our portfolio. So 0:06:58.080 --> 0:07:00.080 we've got products for a variety of price point and 0:07:00.200 --> 0:07:03.520 customers and um, you know, different aesthetic appeals as well. 0:07:03.520 --> 0:07:06.800 Where's the room left to innovate? Uh? You know this 0:07:06.880 --> 0:07:10.119 is the thing that I think companies are always looking 0:07:10.120 --> 0:07:12.040 at and trying to understand, you know, where to go 0:07:12.160 --> 0:07:14.920 next in our world. You know, we really only play 0:07:14.920 --> 0:07:17.120 in about twenty billion of the audio market today and 0:07:17.240 --> 0:07:19.280 our revenue last year was one point seven so you 0:07:19.360 --> 0:07:20.840 have a lot of room in the home. But then 0:07:20.840 --> 0:07:22.560 there's a whole bunch of categories beyond that. They take 0:07:22.640 --> 0:07:25.440 us to ninety six billion dollars. So, as I mentioned yesterday, 0:07:25.680 --> 0:07:27.960 we're investing in the categories that we're already in, but 0:07:28.000 --> 0:07:30.360 we're as well investing in four new ones UM that 0:07:30.400 --> 0:07:32.560 we think called a lot of potential um as well. 0:07:32.560 --> 0:07:34.600 So we're excited that we're working on those and we're 0:07:34.600 --> 0:07:36.600 looking forward to bring out you know, those products over 0:07:36.640 --> 0:07:39.160 time too. But I mean, apart from getting smaller, batteries 0:07:39.200 --> 0:07:42.520 lasting longer, audio quality getting better, and you know, you 0:07:42.560 --> 0:07:45.320 already have speakers for what seemed like to me as 0:07:45.360 --> 0:07:48.400 a Sonos customer, kind of every occasion right now, I've 0:07:48.400 --> 0:07:51.960 heard that for ten years, UM. And we keep coming 0:07:51.960 --> 0:07:53.640 out with the woods that reach into you know, new 0:07:53.680 --> 0:07:56.360 customers and new ideas. And that's the fun part of 0:07:56.360 --> 0:07:57.960 the job, is to come out with these products that 0:07:58.000 --> 0:08:04.280 then our our existing customers rushed out and buy. Let's no, 0:08:04.480 --> 0:08:06.520 of course, not our customers will go out and buy 0:08:06.760 --> 0:08:08.480 and that with the tracks new ones right as well. 0:08:08.480 --> 0:08:11.120 So we're always thinking about how are we servicing those 0:08:11.120 --> 0:08:13.200 existing customers but at the same time attracting a new 0:08:13.240 --> 0:08:15.640 set of customers into the products. And so it's this, 0:08:16.040 --> 0:08:18.160 you know, this balance kind of that we're doing from 0:08:18.720 --> 0:08:20.200 year to year in terms of what products we're going 0:08:20.280 --> 0:08:22.000 to bring out and how we attract more people into 0:08:22.000 --> 0:08:24.840 the system. But it is a long term view two, right, 0:08:24.920 --> 0:08:27.000 Like I don't you know next year will be next 0:08:27.080 --> 0:08:29.280 year for for me, the biggest thing is what happens 0:08:29.280 --> 0:08:31.120 over the next ten years. And so we're investing in 0:08:31.480 --> 0:08:33.439 you know, software and a and all the all the 0:08:33.480 --> 0:08:35.480 kind of stuff that everybody knows is happening in tech 0:08:35.520 --> 0:08:37.200 to make sure that we can bring out products and 0:08:37.200 --> 0:08:40.280 experiences that will continue to surprise people. How do you 0:08:40.320 --> 0:08:44.800 deal with okay, wait, two questions metaverse? Do you think 0:08:44.840 --> 0:08:49.560 about that? I think, yeah, I think the whole idea 0:08:49.679 --> 0:08:53.240 of augmented reality, virtual reality, there's definitely something to that 0:08:53.440 --> 0:08:56.480 and audio will play a big role. Um, So it's 0:08:56.480 --> 0:08:58.600 definitely something that we think about today. Don't know exactly 0:08:58.679 --> 0:09:00.680 what it looks like yet, but um, you know, we've 0:09:01.080 --> 0:09:04.319 we're pretty good about partnering with a variety different companies 0:09:04.360 --> 0:09:06.960 and trying to figure out our ways into spaces like that. 0:09:07.000 --> 0:09:09.079 So we're watching it very closely, all right. And I 0:09:09.160 --> 0:09:11.360 asked this of a lot of leaders of publicly held 0:09:11.400 --> 0:09:13.920 companies stock down for you two percent this year? How 0:09:13.960 --> 0:09:18.439 do you think about it? Wor get into the conversations, Um, 0:09:18.600 --> 0:09:20.840 how does the board kind of approach, like how do 0:09:20.880 --> 0:09:23.160 you think about that? And there's a lot of names 0:09:23.160 --> 0:09:28.120 that are beaten down, menag down what we So I'm 0:09:28.160 --> 0:09:30.160 just but I'm curious. It's got to be something you 0:09:30.240 --> 0:09:33.240 keep in mind. Oh, absolutely, it has to be. And 0:09:33.280 --> 0:09:36.000 I think those that claim that they don't, I don't 0:09:36.000 --> 0:09:38.640 think are necessarily being genuine because it is a factor. 0:09:38.679 --> 0:09:41.120 And all of our people, you know, all of our people, 0:09:41.520 --> 0:09:46.320 UM get compensation through restricted stock units, so that matters. Um. 0:09:46.360 --> 0:09:49.439 I feel responsibility to our people and to our investors, 0:09:49.679 --> 0:09:52.160 and so I think it's important too in these times, 0:09:52.200 --> 0:09:54.120 like really make sure you're telling your story clearly. So 0:09:54.280 --> 0:09:56.480 when we did our earnings call last night, we disclosed 0:09:56.520 --> 0:09:59.359 some data points that we hadn't before around registrations inventry 0:09:59.800 --> 0:10:01.680 U and as well future products, even about the number 0:10:01.679 --> 0:10:04.640 of categories we're going into to help people better understand 0:10:04.840 --> 0:10:06.840 where we're going, so we can always do a better 0:10:06.920 --> 0:10:09.400 job I think of telling our story. And then there 0:10:09.440 --> 0:10:11.000 then there are some things that are out of our 0:10:11.040 --> 0:10:13.120 control in terms of the markets and those kind of things. 0:10:13.160 --> 0:10:17.360 But fundamentally, you know, I do think, Um, you have 0:10:17.440 --> 0:10:19.480 to be mindful of it, and then you also have 0:10:19.520 --> 0:10:22.000 to understand you can't control it, but you can control 0:10:22.000 --> 0:10:23.720 your communications. And then the number one thing you can 0:10:23.760 --> 0:10:27.440 control is your own execution and the ability to actually deliver, 0:10:27.640 --> 0:10:29.760 you know, on those things over time and build, you know, 0:10:29.800 --> 0:10:32.960 build a real business. Right thirty seconds, Patrick, You're based 0:10:32.960 --> 0:10:35.240 in Santa Barbara, a very desirable place to live. Not 0:10:35.280 --> 0:10:36.840 a lot of companies based there. Do you have to 0:10:36.960 --> 0:10:38.760 overpay to attract talent or do you have to do 0:10:38.800 --> 0:10:41.240 you underpay because it is such a desirable place to be. 0:10:41.520 --> 0:10:44.640 So we uh through the pandemic, We've been hiring all 0:10:44.679 --> 0:10:48.240 over the United States. We pay the same you know, 0:10:48.320 --> 0:10:50.720 salary whether you happen to live in City A or 0:10:50.720 --> 0:10:53.160 City b. Um, as we go through it across the country, 0:10:53.200 --> 0:10:55.880 because I figured as as we try to attract you know, 0:10:56.000 --> 0:10:58.920 the the group of like amazing talent, a group of 0:10:58.920 --> 0:11:01.400 diverse talent that we can and why you know, if 0:11:01.400 --> 0:11:03.040 you're doing the same job as somebody in city A 0:11:03.120 --> 0:11:05.080 versus City B, why would you be paid I need differently, right, 0:11:05.240 --> 0:11:07.360 I think that less live in city B. Well, but 0:11:07.360 --> 0:11:09.040 but that doesn't mean you should get paid less for 0:11:09.040 --> 0:11:12.280 your impact at a company. So you know, like I 0:11:12.600 --> 0:11:15.120 think it should be. I'm just playing double's advocate. Yeah, yeah, no, 0:11:15.120 --> 0:11:19.920 I understand, but but I think a personal question. But 0:11:20.000 --> 0:11:22.000 I do think, you know, people should be paid based 0:11:22.000 --> 0:11:24.480 on the impact they're having in their organization. What a gem. 0:11:24.640 --> 0:11:27.640 Come back soon. Thank you, Patrick Span, CEO at Sona's