Cramer says newly public Sonos reminds him of Fitbit: 'I'm not going to make the same mistake twice'

  • CNBC's Jim Cramer is wary about investing in the stock of newly public smart speaker maker Sonos.
  • The company's business model reminds the "Mad Money" host of another device maker: the struggling Fitbit.

Smart speaker maker Sonos may have come public earlier this month to significant fanfare, but CNBC's Jim Cramer had some reservations after reviewing the company's business model.

With high-end wireless and voice-enabled speakers on its product list, Sonos' key selling point is its repeat business: 37 percent of its new product registrations in 2017 came from existing customers.

But as consumer technology becomes more durable, Cramer worried that Sonos' recurring business could eventually become saturated: how often will customers really need to replace their costly speaker systems?

Sonos' business, which has produced conflicting results quarter to quarter and is further complicated by its ties to Amazon, reminded Cramer of a not-so-hot name he once backed: Fitbit.

"Part of [Fitbit's] bull thesis was that they had this huge installed base of loyal users — an ecosystem — and the company argued these people would keep upgrading to their newer, higher priced products," he said.

"Turns out people don't really feel the need to upgrade and Fitbit's stock has been a total, unmitigated disaster," Cramer continued. "Look, I got burned by that one. I'm not going to make the same mistake twice."

The "Mad Money" host was also concerned by what he saw as a "hostage situation" between Sonos and Amazon.

Two of Sonos' latest products — the Sonos One and the Sonos Beam — are powered by Amazon's voice assistant, Alexa, and the agreement between the two companies stipulates that Amazon can disable Alexa integration in the two products "with limited notice."

To make things even more gloomy, the company is competing with established voice-enabled players like Alexa, Alphabet's Google Home and Apple, all of which have the power to crush Sonos, Cramer said.

"Bottom line? You may love Sonos the product like I do, but I'm not enamored of Sonos the company, and I think Sonos the stock is way too risky, even as I'm a committed user of their speakers," the "Mad Money" host concluded.

WATCH: Cramer opines on Sonos' IPO

Disclosure: Cramer's charitable trust owns shares of Amazon, Alphabet and Apple.

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