Stock Highlight: Audinate (AD8.ASX)

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Audinate (AD8.ASX) was one of the most-traded stocks in August 2024 by Sharesight Australian customers.

Price: $9.51
P/E ratio: 76x
Market cap: $792M
As at 02 Sep 2024

What are your thoughts on this company? What we’ve gathered from the market/experts:

Overview
Audinate (AD8) is the leading provider of professional AV networking technologies globally. Audinate’s Dante platform distributes digital audio and video signals over computer networks and is designed to bring the benefits of IT networking to the professional AV industry.

Bulls

  • Large addressable market (TAM): US$2 billion (Audinate share of Audio Market estimated at 9%)

  • Potential network effect: Dante is the world’s leading protocol for digital audio networking, widely adopted across the AV industry. As more AV professionals choose audio equipment from brands like Bose and Yamaha for their compatibility with Dante, it drives OEMs to enhance their products’ integration with Dante. This cycle of increased adoption and compatibility fuels a growing preference among AV professionals for Dante-compatible audio systems.

  • Undervaluation: Morningstar has a fair value of $18.50 (as of 19 Aug 2024) saying the slowdown (Audinate expect revenue to be lower for fiscal 2025) has more to do with a one-off transition in the business model rather than a loss of competitive advantage.

Bears

  • Slower transition to digital: Slower than expected transition from analog to digital can impact digital adoption and Dante’s growth. High switching cost is a key risk.

  • Technology obsolescence risk: Dante delivers data through Ethernet cables. A shift in industry standards or the emergence of new technologies i.e deliver data through wireless internet could negatively impact Audinate’s growth prospects.

  • Economic cyclicality: Audinate’s technology is often used in sectors like entertainment, events, and education, all of which can be cyclical. These sectors are susceptible to economic conditions. Companies and institutions often reduce capital expenditures, delaying or cutting back on investments in new AV equipment in a downturn, which can lead to reduced demand for Audinate’s technology.

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