Sonos Staff Cuts

Sonos to Cut 12% of Workforce

Sonos revealed Tuesday in an SEC financial filing that it will reduce its labor force by 12% this year, close six regional offices, and shutter its New York City retail space. Management indicated that it had initiated a review of expenses in response to the market uncertainties caused by the Coronavirus global pandemic in a Q2 shareholder letter from CEO Patrick Spence in May. The 8-K filing this week by the company summarized the steps coming from that review:

“As highlighted in a letter to shareholders accompanying the Sonos, Inc. (the “Company”) second quarter fiscal 2020 financial results, due to the uncertainty and challenges stemming from the COVID-19 pandemic, the Company began a review of planned investments and implemented initial actions in March 2020 to reduce operating expenses and preserve liquidity, including, as previously disclosed, the reduction of marketing investments, managing and tightening inventory, and eliminating certain discretionary operating expenses. As part of these efforts, the Company initiated a plan on June 23, 2020 to eliminate approximately 12% of its global headcount. In addition, the Company is closing its New York retail store and six satellite offices.”

The Sonos investor website says there are 1,450 employees so presumably about 174 people will be let go by the company. The 8-K filing says that Sonos is reserving $9 to $11 million “related to employee severance and benefit costs.” That works out to $51,000 to $63,000 per employee in separation expense. Management will also take a 20% pay cut from July through September this year and CEO Patrick Spence will extend the reduced compensation through year-end.

Smart Speaker Use Up But Growth is Uncertain

Although the sales slowdown in the second fiscal quarter of 2020 was severe resulting in a 17% year-over-year revenue decline for Sonos, product use was up significantly. The second-quarter shareholder letter reported that listening hours on Sonos devices rose 32% in March 2020 over the comparable month in 2019, and the company estimated that April would be 48% higher. This is consistent with other data that suggests smart speaker use and home media use was up across the board as consumers were forced to stay at home due to quarantine orders related to the global pandemic.

Sonos is in a heated battle with traditional audio speaker rivals and its newly minted smart speaker competitors Amazon and Google. Both companies have thousands of employees dedicated to their voice assistant and smart speaker businesses and they are less concerned with device margins than Sonos.

It is not surprising that Sonos moved quickly to cut costs but the real question will be where those cuts came from. Did they affect the company’s efforts to integrate Snips technology which promises to create some differentiation from Amazon and Google offerings or did the staff reduction disproportionately impact back-office functions? Sonos doesn’t have the luxury of subsidizing its speaker business based on large profits from other product lines. It will be important to watch over the next year where Sonos’ cuts have the biggest impact. A reduction in R&D could create a risk of falling behind better funded rivals.


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