Chip stocks fall with Nvidia after data center rev disappointment
On Thursday, Morgan Stanley issued a downgrade for Sonos Inc . (NASDAQ: NASDAQ:SONO) stock, shifting its rating from Overweight to Underweight.
The firm also significantly reduced the price target for Sonos, bringing it down to $11 from the previous $25. The decision comes in the wake of challenges faced by the company following the launch of its redesigned app earlier in the year.
The analyst from Morgan Stanley pointed out that the app redesign has not been a quick fix and that the financial impact is expected to persist for longer than the market may have anticipated. Since the new app's introduction in early May 2024, Sonos has encountered a wave of user complaints.
These issues led to a public apology from the company's CEO, a refocusing of efforts on resolving the app problems, the postponement of two new product releases, and a guidance for the September quarter revenue to be 40% below prior expectations.
Despite these setbacks and a downward revision of revenue and adjusted EBITDA estimates for fiscal years 2025 and 2026 by 15-45%, Sonos shares have seen an uptick in trading, moving in tandem with broader market trends. Currently, the stock is trading at 13 times its enterprise value to EBITDA (EV/EBITDA), which is nearly one standard deviation above its historical average.
The analyst expressed concern over the disparity between Sonos' valuation and its fundamental performance. Additionally, new data tracking net promoter scores, brand favorability, and purchase considerations suggest that the negative impact on Sonos' user base could extend into FY25. This is a detail that, according to the analyst, consensus estimates have not fully integrated into their projections.
In other recent news, Sonos Inc. announced a significant workforce reduction, affecting about 6% of its employees. The move is part of an effort to streamline operations and enhance cost structure, with the company expecting to incur restructuring charges between $9 to $12 million.
Meanwhile, SoundHound AI (NASDAQ:SOUN) reported strong Q2 earnings, with revenues of $13.5 million, a 54% YoY increase, surpassing analyst projections. The company also narrowed its non-GAAP loss per share to $0.04, better than the anticipated $0.09 loss.
In addition to these financial developments, SoundHound has raised its 2024 revenue guidance to over $80 million, up from the previous estimate of $70.29 million, and provided an initial 2025 revenue outlook of over $150 million.
The company also announced the acquisition of enterprise AI company Amelia, marking a strategic move to foster growth in new verticals. Despite these positive developments, SoundHound's GAAP net loss widened to $37.3 million from $23.3 million a year ago, with a non-GAAP adjusted EBITDA loss of $13.8 million.
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