IPO basics tell us that the first earnings report after an IPO will often tell us quite a bit about what’s to come in the recently public comapny’s future. That proved to be bad news for Sonos Inc (NASDAQ: SONO) on Tuesday after the company released its first quarterly report, missing the mark in a big way.

SONO Reports Earnings

With the earnings report out, investor concerns are high. During the third fiscal quarter, Sonos reported revenue of $208.398 million. Unfortunately, that was a decline of about 6.6%.

Earnings weren’t any better for the company. Analysts expected that during the third quarter, the company would produce a loss of $0.22 per share. The company more than doubled the expected loss, reporting a loss of $0.45 per share.

The Silver Lining Isn’t Glowing Like It Should

In what seemed to be an attempt to turn investor attention from the negative to the positive, Sonos pointed out that the amount of products sold did climb. During the third quarter, the company sold 886,514 units, which is indeed an 11% increase. However, when we dig into the details, the numbers don’t look all that good.

Last year, the company released the PLAYBASE, a $699 system that pushed the average selling price per unit higher for the company. This time around, a lower price product, the Sonos One wireless speaker with a price tag of just $199 was released. Unfortunately, that drug the overall price per unit sold down.

Investors See Through The Charade

Although Sonos did attempt to get investors to pay attention to higher product sales numbers rather than the actual financial data, that proved to be a futile attempt. When it comes to Sonos’ first ever earnings report as a publicly traded company, the company simply wet the bed.

As investors, we often make our moves based on outdated financial information. So, quarterly earnings reports are overwhelmingly important as they provide us with the most recent financial picture. The importants of these reports is only exacerbated when it’s the first report released by a publicly traded company.

With such a negative report in mind, it’s not very shocking to see that upset investors are reacting in a negative way. In fact, at the time of writing this article (10:30), SONO was down 16.52% with a price of $17.73.

Declines Could Continue

Wetting the bed on the first earnings report as a publicly traded comapny, SONO may have set the stage for further declines, and it makes sense. Investors don’t like to see losses that come in at more than double what they expected to see from any company, let alone a newly public one.

As a result, Sonos is setting course on a long, uphill battle. Now that it has lost the faith of investors, it’s going to need to win this confidence back. To do so, the company will have to prove to investors that it is capable of generating growth, and that proof will need to be seen in earnings.

Until this happens, chances are that we will see declines overall in the value of SONO. So, if you’re thinking about buying on the weakness caused by earnings, consider the risks before making your move!


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