Positive market reaction to Audinate Group’s (ASX: AD8) 1H FY25 result saw the digital audio company’s share price skyrocket 28% today.
This is welcome news for long suffering shareholders who have witnessed the share price shed more than half its value since trading at over $23 early in 2024.
The company’s ability to beat market guidance belies the disappointing FY25 outlook management gave the market following FY24 and broker expectation of 1H FY25 being a tough period to cycle.
Gross profit of $US16m was down 29% on the US$22 million due to overstocking of inventory among original equipment manufacturers (OEMs) which led to a dampening in short term demand for the company’s hardware chips, cards and modules (CCM) products.
Improved gross margins
However, gross margins improved to 82% (previously 72%) due to a shift toward higher-margin software-based implementations, which contributed to 13% growth in software revenue.
During the period Audinate - developer of the professional AV-industry-leading Dante media networking solutions - also recorded 61 design wins, up 15% increase on the previous period, boosting confidence in future revenue growth.
Overall, with earnings coming in at $0.84 million, down 91% year on year, the company recorded a net loss of $2.2 million for the half.
The Chips, cards & modules (CCM) products primarily responsible for the revenue reduction were Brooklyn modules and Ultimo chips.
The software products primarily responsible for revenue were IP Core, DEP and Dante Domain Manager.
Other key 1H FY25 numbers posted today include:
• Revenue down 38% to US$18.9 million
• Gross margin up 10.7 percentage points
• $111 million in cash at the end of the period
• Revenue from CCM’s in 1H25 was US$10.1 million, down from US$22.7 million.
• CCM’s accounted for 53% of total revenue.
• Software contributed 44%.
• Operating expenses reduced by 3% to $22.8 million.
• Positive operating cashflow of $1.2 million compared to $11.8 million in 1H24
Customer transition and long-term growth
Despite 1H FY25 being impacted by excess inventory in the OEM channel, Audinate co-founder and CEO Aidan Williams reiterated confidence in the company’s underlying business model.
Underscoring current growth, adds Williams is the support by existing customers for the transition from hardware CCM products to embedded software Dante solutions, further reinforcing the expanding role for software in the company’s product portfolio.
While Williams expects current trading conditions to persist throughout FY25, he expects a return to more typical order patterns in FY26 as inventory levels normalise.
“We continue to invest in our market-leading audio business, expanding our installed product base and manufacturer partnerships,” said Williams.
“Additionally, we are investing in long-term growth opportunities through our video and platform software businesses, positioning the company for success as market conditions improve.”
Looking forward
Looking forward, while Dante Audio is already the de-facto industry standard for digital audio networking, Dante Video and Platform Software are in the early stages of adoption.
With the transition from analogue to digital networking still in its infancy, Williams sees significant opportunities ahead.
While UBS was impressed by the strengthening of the company’s audio/video ecosystem – which was the main positive in 1H result – the broker believes operating expenditure, now missing from guidance could have a major impact on major earnings in FY25.
Current consensus price target is $9.08, suggesting downside of -6.3% (ex-dividends).
Audinate has a market cap of $810 million making it a midcap stock outside the ASX300; the share price is down 52% in one year and up 31% year to date.
AD8 appears to have completed a medium-term rally that took the 5-day moving average above the 50-day moving average and will likely continue its bearish trend.
Audinate Group’s price to earnings ratio of 63.59x is above its peer average of 24.35x.
Consensus is Moderate Buy.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
