FT : Sonos/Google: patent trap

Sonos/Google: patent trap
Speaker maker’s market valuation reflects concern about competition from well-funded rivals

Sonos will approve of the new openness from Google’s parent Alphabet in this week’s earnings release, and will want more of that. The California-based speaker maker’s claim that Google copied its patented music synchronisation system is a bold one. As well as suing Google, it has filed a complaint with the International Trade Commission and is gunning for a ban on US sales of Google speakers. Sonos chief executive Patrick Spence last month testified before a congressional antitrust subcommittee.

Sonos claims to have suffered market share losses. Yet at first glance it does not seem to be doing too badly. In the last quarter it generated $294m in revenue, up 8 per cent from last year. A deal with Swedish furniture maker Ikea to make more accessible products has helped boost sales.

But the smart-speaker market is growing more quickly than Sonos earnings might suggest. Google is estimated to ship four times as many speakers as Sonos. Amazon even more. Both sell speakers at low prices to funnel users on to voice-controlled platforms that feed into the wider business. Sonos’s market valuation reflects growing concerns about the competition from well-funded rivals. Shares trade 6 per cent below the listing price of $15. Valued on an enterprise value-to-revenue multiple, Sonos has fallen from two times to one since listing in 2018.

Any start-up that has found itself up against one of Silicon Valley’s biggest companies will be cheering on Sonos. But patent rules created in a pre-software age tend to mean lengthy and expensive lawsuits. Qualcomm and Apple were locked in a patent fight for years before settling earlier this year. According to Lex Machina, a legal analytics company, there were 3,657 patent cases filed in 2018 — the lowest since 2011, which may be linked to the high costs involved. Google parent Alphabet has $121bn in cash to hand. Sonos has less than $340m.

Google denies the accusation. But Washington’s interest should give the company pause. The alternative view is that Sonos wants big tech companies to enable simultaneous support for their voice assistants on Sonos hardware. A negotiated settlement may be the answer. 

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • FNKO -38.2% (guides lower), GLOP -32.6%, GPRO -12.8%, ENS -12.8%, MTRX -11.8%, MTRX -11.8%, CDAY -11%, UHAL -9%, PTON -7.8%, NTGR -7.1%, ANGI -6.5%, FEYE -6.2%, TWO -5.3%, TWLO -4.5%, PENN -4.5%, GLOG -4.4%, AGCO -4.4%, SBH -4.3%, PAYC -4.2%, BLL -3.7%, TSN -3.2%, ABMD -3%, XYL -2.9%, LEE -2.7%, YUM -2.1%, IRMD -2%, QCOM -1.9%, LCI -1.5%, MXL -1.4%, FORM -1.4%, ICHR -1.1%, NUAN -1.1%, YUMC -1%

Other news:

  • AGTC -7.1% (stock offering)
  • ACB -1.4% (aims to eliminate 10% of its staff, according to Bloomberg)

Analyst comments:

  • CG -0.5% (downgraded to Mkt Perform from Outperform at Keefe Bruyette; downgraded to Neutral from Buy at Citigroup)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • MBUU +10.5%, ELF +10.2%, SONO +9.1%, TWTR +8.3%, USX +7.5%, RAMP +6.3%, QNST +6.2%, CAH +5.4%, GLUU +4.7%, ZNGA +4.6%, ACLS +4.6%, IRBT +4.4%, HAIN +4.4%, REGN +4.3%, CSGS +4%, SNY +3.6%, NGL +3.5%, SPGI +3.5%, TTMI +3.3%, ENSG +3.3%, FOXA +3.2%, ECHO +3.2%, BMY +2.9%, FCAU +2.8%, SAVE +2.7%, TGI +2.7%, ING +2.4%, COHR +2.3%, MC +2.3%, LNC +2.2%, FLO +2.2%, RDN +2.1%, TPR +2.1%, OIIM +2%, LL +1.8%, NOK +1.7%, CTSH +1.6%, CUZ +1.5%, DNKN +1.3%, AVXL +1.3%, NRZ +1.2%, ICE +1.2%

Other news:

  • UIS +15.8% (to sell the company's U.S. Federal business to Science Applications International (SAIC) for $1.2 bln, sees FY 19 revs growth towards upper end of guidance range)
  • AQST +10.7% (announces FDA confirmed 505(b)(2) pathway for AQST-108 following face-to-face pre-IND meeting)
  • LDOS +8.3% (awarded $7.73 bln US Navy contract)
  • ARWR +7.5% (reports interim clinical results from Phase 1/2a studies of ARO-APOC3 and ARO-ANG3; also reports earnings)
  • MLCO +3.2% (has taken the decision to reassess all non-core investments to be made in 2020)
  • BCEL +2.4% (strategic collaboration with Merck)
  • JJSF +1.7% (acquires assets of BAMA ICEE)
  • VLRS +1.3% (reports January passenger growth increased 17% yr/yr)

Analyst comments:

  • MU +2.3% (upgraded to Strong Buy from Mkt Perform at Raymond James)
  • VMW +1.6% (upgraded to Outperform from Mkt Perform at Bernstein)
  • PAA +1.5% (upgraded to Buy from Neutral at Goldman)
  • GD +1.3% (upgraded to Overweight from Neutral at JP Morgan)