Sonos Is Betting Its Speakers on Paid Music Streaming

High-end speaker company Sonos made a triumphant debut on the Nasdaq Thursday, raising $208 million and grabbing a $1.8 billion valuation, not to mention redesigning the stock market’s opening bell.

But while the company’s stock rose 33 percent over its initial public offering price — it was $15 on Wednesday night but closed at $19.91 on IPO day, which is at the high end of the range it had targeted — investors aren’t fully convinced yet of Sonos’ long-term success. The brand, which has been a favorite among music lovers since it launched its first speakers in 2002, has posted annual losses in the last three fiscal years because of increasing operating costs; it also faces a tough time in the oversaturated consumer technology market, which has seen leading firms like Fitbit and GoPro fall far from their original IPO pricing.

Yet Sonos says it has a few reasons to be optimistic about its staying power, one of which is the fact that 93 percent of the products it’s sold over the last 13 years are still active in households today. The company says it’s also excited with a much broader trend: music streaming. Led by the popularity of streaming services, the U.S. recording music industry is growing again for the first time in decades. Sonos — which supports a number of streaming services including Spotify, Apple Music, Deezer and Tidal — thinks the music-streaming audience still has ample room to grow, and that its continued enthusiasm will boost speaker sales as well.

“We’ve been growing the business year-over-year, and we see the opportunity really just getting started when it comes to the streaming market,” the company’s vice president of product management Chris Kallai told BGR. He pointed out specifically that the paid streaming market — e.g. products like Apple Music and Spotify’s subscription tier, wherein users pay a monthly fee to access on-demand ad-free streaming — has grown from 29 million global subscribers in 2013 to 176 million in 2018, and is poised to reach 293 million by 2021.

The merits of free versus paid streaming models have been hotly debated in the music industry for years, and increasingly so after the two-tiered Spotify became a public company earlier this year. But there is general agreement that paid streaming makes more money for artists, keeps listeners more engaged and is a better long-term goal for music. “We heard [the industry] loud and clear,” YouTube Music’s Lyor Cohen told Rolling Stone in May when Google and YouTube announced the launch of a subscription music-streaming service. “They wanted us to be in both businesses, advertising and subscription … When you look at the data, even though we are late to the party, it’s a nascent category still. A lot more people are going to decide to get a music subscription service.” It’s no longer streaming services alone that are staking bets on that.