Industry News

A Monster Story, and Sonos Goes IPO

Noel Lee was an engineer at the Lawrence-Livermore Laboratory and a drummer when he  started his company Monster Cable in 1979, thus becoming one of the founders of the US audiophile cable industry (along with the Cobra Cables imported and sold by Polk Audio, the garden-hose-sized Gold and Brown cables sold by Fulton Musical Industries, and the braided cables from Kimber Kable). The company grew massively, largely due to extensive marketing, a large, well-trained salesforce, and extensive penetration into mainstream retail outlets. Many veterans of the audio industry have done stints at Monster at one time or another.

In the early 2000s, the company became notable (or notorious) for its willingness to sue anyone and everyone using the name “Monster”, all the way from Disney’s film Monsters, Inc., down to Monster Mini-Golf in Warwick, Rhode Island. The company’s actions led to a public perception of Monster Cable as a bully, and somewhat ridiculous (ironically, in recent years Monster Energy Company—makers of the vile energy drink—have continued down the litigious path). In the last decade, Monster—now known as Monster Products to reflect the diversity of their product lines—has been best-known for fostering the Beats headphone line, and then losing it.

At its peak during the Beats years, Monster revenues supposedly  neared $1B.  Last fall, the company made an implausible attempt to enter online gambling; even more implausibly, in May the company filed an S-1 filing with the Securities and Exchange Commission, stating the company’s intent to offer $300M in cryptocurrency. Close reading of the offering made “Monster Money” sound more like gift certificates than a legitimate cryptocurrency—if there is such a thing.

According to the S-1 filing, the company lost $29M in 2016, and nearly $27M in 2017. At the end of 2017, an auditor’s report expressed “substantial doubt about our ability to continue as a going concern.” in Q1 ’18, the company lost nearly $20M—this after spending millions on a single Super Bowl ad.

In response to the S-1 filing, the SEC released what is called a “Bedbug Letter”—a letter indicating that a filing is found upon first reading to be so grossly deficient that the Division of Corporation Finance (colloquially known as “CorpFin”) will not engage in the usual practice of a detailed examination of the filing.

Football fans: what’s the most “Hail Mary” plays every thrown by one team? I suspect that Monster is headed towards that number—if they haven’t already exceeded it. Did I mention that Lee fired most of the board, including the President and COO who had been the partner in the online gambling play? And that the CFO resigned? As usual, our friend Ted Green has all the grisly details.

It will be interesting to see what transpires next in Monster World. Bring popcorn.

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In Copper #63 we wrote about the likelihood of Sonos having an initial public offering (IPO) of its shares. Since then, such has come to pass: on Thursday, August 2, the stock began trading on NASDAQ. Pre-trading estimates set the share price at $17-19, but the stock actually opened at $15. After briefly hitting $21, trading closed at just under $20 at the end of the opening day.

We mentioned a number of risk factors mentioned in the S-1 filing which were somewhat offputting, but pre-launch press was nearly all upbeat. Since trading began, the stock has remained essentially flat, staying around $19—and media coverage of Sonos and its future prospects has become increasingly skeptical. Digital Music News expressed concerns that Sonos would follow the path of Fitbit and GoPro— tech companies which started strong, but whose limited product offerings quickly reached market saturation, and crashed. CNBC’s “Mad Money” host  Jim Cramer loudly compared Sonos to Fitbit: “…Fitbit’s stock has been a total, unmitigated disaster…I got burned by that one. I’m not going to make the same mistake twice.”

We’ll keep an eye on Sonos’ progress—or lack thereof.