Citron Research Makes The Case For Apple Acquiring Sonos: 'Undisputed Leader'

The case for Apple Inc. AAPL acquiring smart speaker maker Sonos Inc SONOS is simple: "home is the new sanctuary," according to Citron Research's Andrew Left.

Shades Of Apple: The most recent homebuilder sentiment data showed the largest monthly surge in history, and Sonos is well-positioned to take advantage of the continued "stay-at-home trend," Left said in a Citron report published Monday.

Sonos is the leader in the connected home space, he said. It has a market cap of just $1 billion, but its "mega growth story is happening NOW in real time," the report said. 

While the company has introduced three new products since the start of quarantine, it is wrong to claim it is merely a seller of high-end speakers, Left said. 

Investors may not fully appreciate the stickiness of Sonos' products, as many new customers remain loyal for life, he said. 

Existing households account for 37% of new product registrations and the average home includes 2.9 Sonos products, according to Citron. 

"This means that every new Sonos customer acquired will continue to buy new products over the coming years as they are hooked in the ecosystem ... very reminiscent of Apple." 

Sonos Trades Like GoPro: Sonos has shown investors consistent revenue growth and profit similar to multi-product companies like Apple, Left said.

Investors are valuing Sonos stock similar to "much weaker" and single-product companies like GoPro Inc GPRO, he said. 

Sonos' products are "sold out across the board," yet trade at less than one times sales, according to Citron. GoPro, on the other hand, trades at a similar valuation — and isn't a beneficiary from the stay at home trend.

Why Apple Should Buy Sonos: Sonos is the "undisputed leader" in smart home audio, with the second most powerful patent portfolio in consumer electronics, Left said.

Many larger tech companies that have an interest in acquiring the company, in his view, with the "most obvious" potential acquirer being Apple.

On the same day that Sonos sued Google and accused Amazon of stealing its technology, Apple quietly started to sell Sonos speakers in its Apple Stores, he said. 

If Sonos stock trades at three times sales, shares would be worth $38, Left said, adding that he believes Sonos' stock "will trade materially higher before ultimately being acquired."

SONO Price Action: Sonos shares were up 12.52% at $13.44 at the time of publication. 

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Photo courtesy of Sonos.