- Sonos surged Monday after famed short-seller Andrew Left of Citron Research published a note that said Apple is likely to acquire the smart-speaker company.
- Citron expects shares of Sonos to surge roughly 130% from current levels, to $30.
- The firm praises Sonos’ resilience against large cap tech competitors like Google, Amazon, and Apple, and points to the company’s 18 years of consecutive revenue growth as evidence of the company’s strong product ecosystem.
- “The strength of Sonos brand is best exhibited by Sonos’ gross margins, which are 400bps higher than Apple,” Left said.
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Sonos surged as much as 22% to $14.53 on Monday after the report was published.
Left said that Sonos is the leader of sound in connected homes, and its enterprise value of $1 billion is low relative to recent SPAC’s and other stocks that have gone parabolic amid increased retail trading. Left expects Sonos to report “a blowout quarter.”
Left said, “Just as the world went into quarantining and home became the new focus, Sonos introduced three new products that are sold out EVERYWHERE.”
The sold out Sonos products is a demand issue, not a supply chain disruption, according to channel checks conducted by Citron.
The note mentioned that Sonos has created a sticky ecosystem that has allowed it to consistently grow revenue for 18 years despite intense competition in the smart speaker space from big tech giants like Amazon, Google, and Apple.
Apple is the most likely acquirer of Sonos, according to Left, who said that the similarities between the two companies “are uncanny.”
“The strength of the Sonos brand is best exhibited by Sonos’ gross margins, which are 400 bps higher than Apple. Both Sonos and Apple have strong high margin direct to consumer offerings,” the note said.
Sonos is only second to Apple in issued patents, which should protect the company from competitors. Sonos sued Google for infringing on five of its patents, according to the note, which argues Sonos could stand to benefit in the form of licensing fees if the courts rule in its favor.
Left pinned a $30 price target on Sonos for 2020, but said the stock could surge even more if its re-rated to a higher multiple: “Assuming Sonos should trade at 3x sales, this implies a stock price of $38. At 6x sales, this implies a stock price of $64.”
But at the end of the day, Sonos may not reach those levels if Apple swoops in and acquires them.
Left said: “The most obvious potential acquirer is Apple. Consider this: On the same day that Sonos publicly sued Google and accused Amazon of stealing its proprietary technology, Apple began selling Sonos’ speakers in its Apple Stores.”
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