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Are Audinate (ASX:AD8) shares a good investment?

The Audinate Group Ltd (ASX:AD8) share price has been an exciting name to follow in the ASX technology space for some time.

Given the uncertainty of the future, is Audinate stock a profitable buy at current levels?

What does Audinate do?

Audinate is an Australian provider of professional digital audio networking technologies. Its flagship platform is called Dante, which allows the distribution of digital audio signals over local networks (LAN) and essentially combines the advantages of computer networks for the professional audiovisual (AV) industry.

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For a person without prior knowledge in this area, some of the underlying technologies and applications can seem quite complex and esoteric. I am by no means a sound engineer, but I will attempt to explain the basic concepts of using this type of technology.

Dante can be used in various audiovisual applications which involve several microphones, mixers, processors, amplifiers and speakers. Among the most common applications are live performances in stadiums, churches, conference rooms, ballrooms and radio stations.

Traditionally, connecting all the hardware required multiple analog cables which were expensive and often difficult to maneuver. Dante simplifies this traditional process replacing old connections with a local network using ethernet cables. The end result is much easier installation Who Significantly reduces the amount of material needed to send audio between devices.

COVID-19 disaster

Audinate supplies its network components to other manufacturers professional audiovisual equipment, including Yamaha, Bose and Sony. As such, its turnover is mainly determined by the volume of new professional audiovisual equipment sold. To go further, these are actually the capital expenditures of individual businesses that involve this type of equipment.

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As you can imagine, COVID-19 has shut down most of the gig economy. As a result, stadiums are not equipped with new sound systems and conference rooms are empty. Audinate’s FY20 Results Were Not Very Good, with growth practically zero revenue and a net loss equivalent to 4 million euros for the year.

While the drop in demand has slowed sales growth, management at least seemed proactive in the face of this negative situation. The company has undertaken a fundraising of 40 million euros in July and August, the funds to be used for R&D in order to develop new technology to take advantage of the COVID environment.

L’businessumbrella company in cash before the capital increase and has hinted that it might pursue mergers and acquisitions at some point, but this has yet to bear fruit.

A V-shaped recovery?

Relative to ASX travel shares which would likely see a rapid recovery in sales of a hypothetically successful vaccine, some have noted that Audinate recovery could take much longer in comparison.

Intuition is logical : for a company in difficulty which would usually purchase equipment under favorable conditions, it does not seem likely that large capital expenditures would be high on the priority list compared to other costs that might be considered more essential to the operation of the business.

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If this were to be the case, it does not seem likely that Audinate’s revenues and profits will see the V-shaped recovery that one would expect in other companies. What could happen instead, it’s a significant delay compared to the rest of the economy. I think management thinks the same thing, because they have implied that revenue is not expected to increase in fiscal 2021.

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Is Audinate stock too expensive?

For a company that has such a gloomy projection of the general environment with respect to its short-term development, I would have expected the valuation to reflect the situation. However, Audinate shares are currently trading at around 6.50 euros at the time of writing, approximately 18 times FY 2020 revenue. It’s not cheap at all, especially considering the most recent net loss of €4 million for the previous financial year.

The market has clearly moved past this ongoing headwind and has valued the company based on its long-term growth prospects. I think this is partially justified given the attractive characteristics of the company.

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Remember, Dante is now the industry standard for modern AV connectivity. Future success will come in part from a strong network effect where manufacturers are almost forced to make their products compatible with Dante, as Dante increasingly establishes itself as the AV professionals’ preferred connectivity method.

Additionally, the intellectual property behind Dante technology and high switching costs provide a significant competitive advantage over competitors.

Audinate: Buy/Hold/Sell

The general consensus among commentators seems to be that Audinate’s valuation is stretched given the company’s uncertain prospects. I agree, and this is why I would like to try to recover some shares around the 4 to 5 euro mark.

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I think that’it is logical and likely that events will return to pre-crisis levels and even higher levels at some point in the future. However, if the recovery takes longer than expected and stocks are too expensive now, the overall investment opportunity might seem less attractive to some.

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Understanding Audinate?

Audinate is undoubtedly the biggest evolution of audiovisual systems, converging all previous connection types into one. Indeed, Dante offers significantly better performance than any existing systems, making them easier to use, easier to extend and less expensive to deploy.

Would you like to understand how? In this case, perhaps it is time toconsider training in audiovisual, notably on DANTE. Waiting for, Click here to obtain additional information related to the audiovisual world.

Concerning the audiovisual related training, you may be required to follow different types as part of your profession.

  • This may concern you as independent worker, intermittent worker in the entertainment industry or even within a company if you are responsible for communications.
  • You will be able toconsider to improve yourself in an area where you feel you have gaps or to get back up to speed after a certain number of years.
  • These training courses can cover shooting, framing and editing to produce a video film promoting your business. This may also concern the video content creation for your website or adapted from a smartphone.

To return to Dante, know thatit is also possible to complete qualifying training. It is generally open to beginners and can be a real plus on a CV. However, you will need to have some knowledge of cabling, consoles or audio distribution. It will take you a week to master Dante. At the end of the training, you will be able to:

  • Select the appropriate equipment and a complete overview
  • Administer an IP network via the Dante protocol
  • Diagnose a network failure.

Know that this type of training can be covered by the Pôle Emploi, so don’t hesitate to inquire.