Sonos stock falls amid downgrade, cautious consumer spending

Yahoo Finance Live anchors discuss Sonos stock getting a downgrade by Morgan Stanley.

Video transcript

BRIAN SOZZI: Shares of Sonos moving after being downgraded to equal weight by Morgan Stanley, noting that consumers are turning more cautious about spending. We spoke with Sonos CEO Patrick Spence in May about a potential spending slowdown. Take a listen.

PATRICK SPENCE: We've been hearing all of this noise in the broader kind of consumer sector. And I know a lot of concern. But when it comes to our consumer, everything we see right now-- and based on the results you just saw-- our consumer remains strong. And so we're very pleased to bring a 20% year-over-year growth.

BRIAN SOZZI: So there you had Patrick Spence, CEO of Sonos. And I'm looking over this Morgan Stanley note, guys. I think it's more of a broader look at the consumer. The headline on it is "Buckling Up for a Consumer Spending Slowdown." And I suspect you'll see more notes like this on retail, more broadly, and companies like Sonos. But again, that was Spence about three weeks ago telling us he's not seeing any recessionary-like signals in his business.

BRAD SMITH: I mean, for anybody right now that is looking into not just the retail sales data that's coming out, not just the consumer confidence that is at lows right now, how can we possibly say that the consumer is incredibly strong when they are going to the store--

BRIAN SOZZI: Don't [INAUDIBLE]. I can't. I can't go back to that last segment.

BRAD SMITH: I mean, look here. I mean--

BRIAN SOZZI: You're right, though. You're right. You're 100% right.

BRAD SMITH: You're going into this store, looking at sections that have either been taken out because they don't have the inventory, and looking at the sections you are going into, where the prices are markedly higher, and I'm just supposed to wait for discounts to come across?

JULIE HYMAN: Well, so here's the question. Here's the question. How is the higher-end consumer going to hold up? The people who are most hurt by higher prices right now are not Sonos customers, right? Let's be clear on this. So if there is an economic pullback, what is the Sonos, what is the Lululemon, what are these higher-end consumers-- customers going to be doing? I think that's still an open question.

They're hurt by higher prices like everyone else and are much more exposed to the so-called wealth effect, where they're watching the market go down and also feeling like they have less money. So we could start to see that chipped away. Is a Sonos more resistant than a lower-income customer? Maybe. We'll have to see.

BRAD SMITH: But I would argue, then, that that cycle has already passed for a Sonos. All of the people who were going to buy that new consumer tech, that are in that category for them, in the customers that are higher-end net worth individuals and want to get the Lululemons and have their Sonoses connected in every single room and also want to make sure that they've got their Nike NFTs and whatnot, they've already purchased.

JULIE HYMAN: It's done.

BRIAN SOZZI: I have no more room for speakers.

JULIE HYMAN: I was going to say, Sozzi's run out of rooms.

BRIAN SOZZI: I have 11 of these now. I guess I'm a high-end consumer for that.

JULIE HYMAN: 11?

BRAD SMITH: He's maxed out. We're done.

BRIAN SOZZI: I do. I have 11.

JULIE HYMAN: Where do you have 11 rooms?

BRIAN SOZZI: They're all-- I can't.