Sonos picks a good time to plug into headphones

There’s never a great time to step up competition with Apple. But for Sonos, the timing is a necessity.

The maker of premium-wireless speakers is finally breaking into the headphone market. Sonos lifted the wraps Tuesday on its Ace headphones, slated to go on sale June 5. It is the most significant move to date into a new market segment by the company that helped pioneer the Wi-Fi speaker market.

Market research firm Circana estimates that headphone sales in the U.S. totaled nearly $2.2 billion in 2023—48% larger than the market for Wi-Fi audio speakers.

The move also brings Sonos a new list of major competitors. The $450 Ace will compete in the premium end of the over-ear headphone market, where brands such as Sony and Bose have long reigned supreme. But its most formidable foe might be Apple, which sells premium, over-ear headphones under the Beats Electronics brand along with its AirPods Max.

The latter product looked like a stretch in late 2020 when Apple launched the massive headset with an even more massive price tag of $550. But that price and eye-catching design also seem to have transformed the AirPods Max into a social-media-fueled status symbol among fashionistas. Vogue described the headset as “the chunky, oversized flex of the moment” in an article this past year. Circana analyst Ben Arnold said the AirPods Max has become a major player in the premium, over-ear headphone market that saw U.S. sales jump 45% in 2023.

Sonos has a lot of practice successfully competing against Apple and other tech titans. Cheap-smart speakers from Amazon.com and Google sapped some of the company’s growth in 2016. But privacy concerns and those products’ mediocre audio quality helped Sonos quickly regain its footing. The company posted a 28% jump in unit sales in its fiscal year ended in September 2018, nearly tripling from the prior year. That was also the year Apple put out its first smart speaker dubbed the HomePod. It had disappointing sales and was discontinued three years later before being redesigned as a cheaper version.

Sonos has had its struggles lately. The company enjoyed a big burst of sales early in the pandemic as workers stuck at home took the opportunity to beef up their sound systems and home theaters.

But those are also products that last for years, meaning Sonos likely pulled forward some future growth. The company sold 5.1 million devices in the 12-month period that ended in March—down 23% from the same period two years prior. Revenue of $1.66 billion for the fiscal year ended September 2023 was down 6% from the previous year and marked the first-ever annual drop reflected in the company’s reported financial statements.

Luckily, the company isn’t flying blindly into headphones. Sonos has an installed base of about 15.3 million households using the company’s speakers, and Chief Executive Officer Patrick Spence says headphones are the most requested product from that customer base. Analyst Brent Thill of Jefferies estimates that every 1% of Sonos households that pick up a pair of headphones equates to about $69 million in revenue. Spence says headphones are expected to account for a large portion of the $100 million in new product revenue the company has already projected for the current fiscal year.

“We expect early on existing customers will pick this up in droves,” Spence said.

Hopes are high. Sonos shares have slumped recently, but the stock is still up 45% since its fiscal fourth quarter report in November when it first dropped hints of a coming headphones launch. That has put Sonos’s 12-month performance nearly on par with Apple’s and well ahead of other premium tech peers such as GoPro and Peloton.

In a survey earlier this year, Thill found that 62% of consumers said they buy a new set of headphones every three years, “suggesting a significantly faster refresh cycle compared to typical Sonos products.”

Sonos may find its new cans playing a particularly welcome tune.

Write to Dan Gallagher at dan.gallagher@wsj.com