Company Reports

We expect Audinate’s strategy to primarily focus on accelerating the secular transition toward digital audio networking. Secondarily, we expect Audinate to focus on building out its nascent business for digital video networking.

We maintain our AUD 18.50 per share fair value estimate for narrow-moat Audinate following the release of its fiscal 2024 results. The company released fiscal 2024 results on Aug. 6, 2024, including its outlook for fiscal 2025, which shocked markets. The company guided for a decrease in revenue in fiscal 2025 and flat to slightly negative gross profit growth, compared with market expectations for more than 20% growth for both. The current release provides more detail and shows that the company and industry are transitioning from hardware-based to software-based sales, which come with lower per-unit revenue and gross profits.

We expect Audinate’s strategy to primarily focus on accelerating the secular transition toward digital audio networking. Secondarily, we expect Audinate to focus on building out its nascent business for digital video networking.

We lower our fair value estimate for narrow-moat Audinate by 20% to AUD 18.50 per share after the disappointing prerelease of fiscal 2024 results. While the fiscal 2024 result is in line with our revenue and profit forecasts, guidance for fiscal 2025 signifies a dramatic, unexpected slowdown. The share price nearly halved at the open, before recovering to trade down around a third. We view Audinate shares as materially undervalued as fiscal 2025 is likely a transition year, after which growth will reaccelerate and margins will expand again.

We initiate coverage on Audinate with a fair value estimate of AUD 23 per share. We assign Audinate a narrow economic moat based on network effects. We forecast revenue to grow at a 10-year CAGR of 22% and EBIT margins to expand to 36% by fiscal 2033 from 1% in fiscal 2023. We use a weighted cost of capital of 9%. We assign Audinate a Morningstar Uncertainty Rating of High and rate its Capital Allocation as Exemplary. At current prices, Audinate shares screen as materially undervalued and not reflective of our view of Audinate as a well-managed high-quality company with a large and highly winnable market opportunity.

We expect Audinate’s strategy to primarily focus on accelerating the secular transition toward digital audio networking. Secondarily, we expect Audinate to focus on building out its nascent business for digital video networking.