It’s been a rough six months for Sonos. After the disastrous roll out of its new control app, the multi-room giant has spent much of the last few months on a reputation-saving mission—saying sorry (a bit too late), putting products on hold (briefly, at least), and plowing money into an app fix that still isn’t entirely finished.
A couple of weeks ago, it announced its fiscal 2024 earnings, and they were—perhaps predictably—not too pretty. Overall revenue was down 8 percent year-on-year (YoY), with Q4 particularly bad, down 16 percent YoY. Sonos tried to downplay the impact of its own mistakes, blaming “softer demand due to challenging market conditions” before, in a mea culpa, admitting that “challenges resulting from our recent app rollout” had also played their part.
However, it could be right—there could be bigger things at play here. This is the second year in a row that Sonos has posted a YoY decline in revenue—down 5.5 percent in 2023, despite two rounds of layoffs. “Challenging” was the word CEO Patrick Spence used to describe that year too, and while keeping the momentum following two bumper years during Covid was never going to be easy, there may be something of a pattern emerging.
In its FY24 earnings call, it was even remarked by investors that Sonos had only added one million new users this year—that might sound impressive but it was said to be the lowest in the last “5 to 10 years.” And while the overall speakers per household were actually up to 3.08 from 3.05 last year, with a slowing new user base, how can Sonos continue to make money in what is looking to be a saturated market?
In Good Company
Sonos wouldn’t be the first company to consider whether a subscription model might help to keep things buoyant. Recurring revenue streams make a lot of financial sense—and some huge brands use them to their advantage for that very reason.
GoPro first turned to a subscription model in the face of poor sales in 2016, offering cloud storage for the footage from its pricey action cams. It expanded its GoPro Plus offering further in 2018, and has continued to do so, growing the subscriber base from 160,000 members at the time to 2.56 million as of November 2024. While overall revenue was down YoY in Q3 2024, and layoffs are happening as a result, its subscriber revenue had grown 11 percent, showing the promise this model holds when hardware sales falter.
Games console manufacturers have also found subscriptions to be hugely beneficial to their bottom line. In 2021, during the Activision Blizzard acquisition, legal documents showed Xbox’s Game Pass had brought in a total of $2.9 billion from consoles in the fiscal year ending 2021—around 18 percent of the total Xbox business. This could have risen to as much as $4 billion the following year, it’s been predicted. So with Xbox sales plummeting earlier this year, it’s perhaps not surprising the company responded by hiking the Game Pass price by 25 percent in the same month.
+ There are no comments
Add yours