Sonos Just Won a Major Lawsuit Against GoogleAug 17, 2021
Something monumental just occurred with Sonos and Google. And guess what? No one is talking about it. Sonos just scored a preliminary win with a lawsuit filed against Google. The outcome was a ruling that Google infringed on all five of Sonos' smart speaker patents.
While the ruling is not yet final, it could end up leading to a ban on all Google smart speakers.
Yes, you just read that right.
A final ruling should happen on December 13th of this year, and the speakers aren't the only product at risk of being shut down. Google's products that connect to those speakers, like Pixels and Chromecasts, could also be shut down too.
Should this occur, the implications for Sonos are absolutely massive! Let's discuss the likelihood of this happening, the potential for Sonos and what our new price target is for the company below. This could end up being our favorite pick in the consumer hardware sector.
ITC Lawsuit Filing Overview:
So what actually happened here? Long story short: Google was found guilty (preliminary hearing only) of infringing upon all 5 of Sonos patents. While there is still months of continued diligence in order to come to a final ruling, this first win for the company was a massive step in the right direction because it actually confirms the validity of Sonos patents.
It also brings them significantly closer to finding a new way to further monetize their existing technology. This is the key takeaway here.
Google Home is one of the products that could be entirely suspended if the ruling is finalized.
Should this occur, Sonos has a real opportunity to be able to negotiate a portfolio license with all of Google's products that leverage this technology. This would be a game changer for Sonos.
To put this into perspective, Google shipped over 100 million units between 10/16 & 3/21.
If Sonos is able to secure a license, their opportunity to leverage their existing technology, with effectively 0 incremental financial burden, would have huge upside for them in terms of revenue. In this scenario, Sonos would likely receive a massive recurring deal with Google that would lead to a huge new revenue source. Should this all occur, we project some pretty significant positive tailwinds on the the stock to trend upwards. And while the market is slowly catching on (up 9% in the last 5 days), the trend is far from over.
So do we actually think this will happen?
The short answer is yes but we still love the stock either way. Our thesis on them has not changed at all.
Therefore we are viewing this event as a free pass for Sonos investors to participate in a new type of upside that has not been fully baked in yet. Even if this event does not occur, we still believe that Sonos has a high ceiling. With a new increased price target of $50, regardless of the lawsuit, Sonos still has an opportunity to grow over the back half of 2021. And should this lawsuit go through, we believe it could add on another $15 in value to the stock. Therefore this investment approach is unique in the sense that we're viewing this as a catalyst for a second price target.
One additional thing to note, is that investors often buy the rumor and sell the news. So should the price run up, in the days leading to the decision, it may be wise to lock in some upside in case it drops sharply, shortly thereafter.
Price Target with no lawsuit win (1): $50
Price Target with lawsuit win (1): $65
Lawsuit Date: December 13, 2021
Target Date (1): Year End
Target Date (2): Q1 2021