Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.
__________
The Trump administration has added a new risk to companies planning to go public: a trade war.
Sonos’s debut on the public markets this week did not go smoothly. On Thursday, its first day of trading, Sonos’s stock was up more than 20 percent. But that was only after Sonos, which makes smart speakers, cut the price of its initial public offering on Wednesday. It sold 13.9 million shares to investors at $15 apiece, well below the range of $17 to $19 that the company had predicted in its filing with the Securities and Exchange Commission last week.
Concerns that Sonos could get caught in President Trump’s escalating trade fight with China may have helped dampen demand for the company’s shares.
Increasing investor concern about tariffs has hit stocks in recent weeks. Shares of Whirlpool, Alcoa and General Motors tumbled after the companies warned of the financial hit from the higher costs related in part to the Trump administration’s tariffs on steel and aluminum.
So far, the tit-for-tat tariffs imposed by the United States and China have had little impact on Sonos, the company said. But as trade tensions ramp up, Sonos looks particularly vulnerable.
Like most American consumer electronics, the speakers sold by Sonos are made in China and, for that reason, could be included in the proposed tariffs on $200 billion worth of goods that the White House released last month. A final decision on the size and scope of the tariffs is not expected before September.
In its filing with the S.E.C. ahead of its I.P.O., Sonos warned that tariffs were a potential risk to anyone buying its shares:
If the tariff list remains unaltered, all of our inbound products to the United States would be subject to a 10 percent tariff assessed on the cost of goods as imported. If these duties are imposed on our products, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance. Alternatively, we may seek to shift production outside of China, resulting in significant costs and disruption to our operations.
The possible hit to Sonos’s bottom line could be even worse. The New York Times reported this week that the White House was considering more than doubling the proposed tariffs to 25 percent from 10 percent.
Of course, the trade worries only add to the list of more traditional investor concerns. The company, which started life as a multiroom speaker maker, has more recently ridden the wave of smart speakers. That has put the company in the position of both teaming up and competing with heavyweights like Amazon, Google and Apple.
Sonos’s growth is slower than some recent I.P.O.s as well. The company’s revenue rose just 10 percent in its last fiscal year. For comparison, Spotify grew 37 percent and Dropbox 31 percent in the year before they went public.
And a red flag for those looking to buy into the I.P.O.:Sonos’s existing shareholders accounted for 8.3 million of the shares sold in the offering.
