‘We’ve really disrupted the market,’ Sonos CEO says

Sonos CEO Patrick Spence joins Yahoo Finance Live to discuss the launch of the Era 100 and Era 300 speakers, innovation and competition in the audio space, and the outlook for Sonos.

Video transcript

[AUDIO LOGO]

JULIE HYMAN: The last few years have been more than challenging for the tech space. And smart speaker maker Sonos was no exception. Bottlenecks from supply chain disruptions have since eased though. And everyone seems to be awaiting a tailwind from President Biden's CHIPS Act. All this could mean good news for the company. And it's dialing up its offerings with the launch of its newest smart speaker. So what does all of this mean for the stock?

Sonos CEO Patrick Spence is joining us now along with Yahoo Finance's Brian Sozzi. And man, Soz has been waiting for these speakers, Patrick. As you know, every time you've come on, he's been asking you for information about them.

So there are new shapes to these speakers. There are new features for these speakers, including connectivity. What's sort of the big headline that you want people to come away with when they're looking at these new offerings?

PATRICK SPENCE: Innovation. We're raising the bar once again on the industry. And we've done something that's a first for Sonos, which is introduced two products simultaneously. So the team has really outdone themselves. With the Era 300, you're talking about the best spatial audio speaker in the world. And you really see that form. It's a bold new design.

And the Era 100 is really the remastering of our iconic Sonos 1, which remains our top seller and has really been the industry's top smart speaker. But we still thought there was an opportunity to reinvent that. So we've done that from the bottom-up.

And these products are incredible. I can't wait for you guys to hear them and really feel the sound that comes out of them.

BRIAN SOZZI: Patrick, why is the shape different?

PATRICK SPENCE: Yeah, so Brian, this is a classic case of form following function. So with spatial audio, really, you need the height channels. And you need to start from scratch. So you can't take a previous speaker and just try to jam in the new codecs and that kind of thing to really create that immersive feel and feel the sound.

And so we started from the bottom. We made sure that it would be able to deliver that feeling of being in the center of the music. And you've got to hear some of the tracks that people like Phineas have actually tuned for spatial audio. And they're just so brilliant in terms of the way that they actually feel.

BRIAN SOZZI: Patrick, I've invested a large sum of money in a large number of Sonos speakers. I've told you this repeatedly. And I'm not alone. Many other people have done the same. How are you going to convince them that they need to start upgrading, in my case, 11 speakers?

PATRICK SPENCE: So I know you can take those 11, give them to Julie. And then--

JULIE HYMAN: Oh, I already have them also, Patrick. That's the problem.

BRIAN SOZZI: That's the point here!

[LAUGHTER]

PATRICK SPENCE: So look, the best thing about Sonos and one of the things that we're most proud of is over 90% of the products we've sold over the last 20 years remain in service today. And I think that's the testament to the quality of the products, the longevity. And so we really hope a lot of customers-- and we know, if history is any indication, a lot of customers will come and add these amazing new products to their system.

But they'll move the other ones to another room or perhaps give them to a friend or family member. And so we think that real flywheel works here. And you don't have to get rid of any of those products. Pass them along to somebody else that can enjoy the Sonos sound.

JARED BLIKRE: Jared here. Sozzi, I could use 11 speakers.

BRIAN SOZZI: I got your, brother.

JARED BLIKRE: Thank you.

BRIAN SOZZI: I'll give you five. I'm giving you five.

JARED BLIKRE: Thank you so much. I'll take half.

Seriously, I want to know how you think about your competition. You have the traditional audiophile space where you have these nice speakers, nice hardware. And then you also have the smart devices like Alexa. You have Siri. And those don't necessarily have the fidelity that yours does.

How do you think about your product with respect to the audio engineering that goes into the tech but also the AI component as well?

PATRICK SPENCE: Yeah, great question. I think the legacy players we've competed with, we've really disrupted the market, right? And we did that because we are the story of software eating audio. Then the big tech players jumped in.

And they all had different strategic reasons to get into the space. And a lot of it was kind of mixed. It wasn't about providing great sound and doing it in a brilliantly simple way. And so we've done that. And our Sonos Voice Control that we introduced last year is really focused on music and getting you quickly to the music that you want to listen to. And behind that is machine learning, AI.

And I think that in a world where there are tens of thousands of tracks getting uploaded to Spotify, Apple Music, Amazon Music every day, there's an opportunity really. And this is a bit what we've done with Sonos Radio, to really curate for people-- and that's where AI, machine learning, some of those things come into play.

You saw last week, Spotify doing an AI DJ, these kind of things that will help really get people to music that they like a little bit quicker and not have to deal with the massive amount of choice that's out there.

JULIE HYMAN: Patrick, on the sort of competition front, I also have a compatibility question because I know there's some litigation ongoing. There's also talks ongoing between you and some of the other tech companies as to the compatibility of the devices. Any movement on that, especially with these new products coming out?

PATRICK SPENCE: The one thing I would note is that continues-- the new product support Amazon's Alexa, obviously Sonos Voice Control. But they do not support Google Assistant because Google changed the way that they are doing the technology stack for voice. And it's a heavy engineering lift. And at this point, we're kind of hoping they go back to using the old approach. But that's not a Sonos-specific thing. That's something Google's chosen to do.

I think voice in general right now is kind of in that-- if you think about Gartner's hype cycle. It's kind of in that trough of disillusionment. And I think we'll find-- we're finding with Sonos Voice Control, the highest net promoter score and as well, really heavy usage because it's very focused on music. And it does music very well. And it's private.

And I think we will see voice take on a bit of a new life thanks to what's happening with AI and ChatGPT and some of these things. But right now, it feels a bit like it's in a trough of disillusionment if you look at a lot of the articles and pundits in terms of what they're saying. But for us, it's a great way to get people to the music they love very, very quickly.

BRIAN SOZZI: And Patrick, while we're discussing these new speakers, these are expensive products for a lot of households. And they come at a time, today at least, when we have the Fed chief testifying, talking about inflation, higher interest rates. You have lawmakers voicing concerns about the state of household budgets.

Two-part question, what is the inventory commitment from major retailers for products like this against this uncertain economic backdrop? And do you see-- how promotional do you expect to get for some of these products?

PATRICK SPENCE: Yeah, so we've got great commitments from our retailers. And you'll see some excellent promotion of these products but not in a price way. You know we are very disciplined in that type of approach. We are not a promotional type of brand.

And I think, Brian, if you think about the products and you think about their 10-plus-year lifespan, for the 1, that's $25 a year. For the 300, that is $45 a year. If you break that down on a daily or monthly basis and how much these products get used, it is a-- we think it's a lot of good value for the money.

They're expensive as an upfront. But they last a lot longer than anything in the industry. We continue to upgrade them. We continue to bring new services to them. So I think at that price point, it's a value. And we'll--

Certainly, it remains an uncertain time economically. But these products as well will be around for years, right? And we build for the long term. So we are very confident that, over the long term, these products will be as successful as all of our products have been.

JARED BLIKRE: All right, and I look personally forward to putting that test to the use here. Hopefully I get those five speakers.

BRIAN SOZZI: You will. You will.

JARED BLIKRE: All right. Thank you to Sonos CEO Patrick Spence.