Technology stock

Avid Technology Stock: An Attractive Game with Strong Catalysts (NASDAQ: AVID)

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For the media and entertainment industries to thrive, there must be a variety of tools they can use to create, edit and manage the content they seek to convey to the masses. A company dedicated to providing some of this support is Greedy technology (NASDAQ: GREEDY). In recent years, the company’s turnover has been really lackluster. However, earnings and cash flow have shown significant improvement and the company’s short-term outlook is currently positive. From a purely valuation standpoint, the company’s stock doesn’t look so bad either. I wouldn’t go so far as to say that the company deserves huge benefits. But given the interesting transformation the company is going through and given that the stock looks reasonably priced, I would say this is a moderate “buy” at this time.

Avid Technology – A technology game about content

For those unfamiliar with Avid technology, it should be noted that the company describes itself as a developer, marketer, seller, and provider of software and integrations for creating, managing, and distributing video content and sound. The company’s primary focus is to serve the needs of the media and entertainment industry with its open platform and comprehensive software tools and workflow solutions. Generally, the company’s solutions are used in production and post-production facilities, motion picture studios, cable television stations, recording studios, live sound performance venues , advertising agencies and other similar organizations. With its suite of tools, its clients are able to more efficiently produce feature films, TV shows, news broadcasts, sports productions, and even focus on live events. According to management, the company has been recognized for its technological innovation with 18 Emmy Awards, a Grammy Award, two Academy Awards and the America Cinema Editors Technical Excellence Award.

Of course, this is only general information. To really understand the company, we need to dig a little deeper into its business model. First and foremost, we have what management calls its Creative Software Solutions. This side of the business includes a variety of miscellaneous tools. An example would be Media Composer, which is used to edit video content like TV shows, commercials, and movies. Another feature is called Pro Tools and works as a digital audio workstation software that eases the audio production process for its customers. This particular platform supports both in-house and third-party developed software plugins and embedded hardware. Then we have Sibelius. This product allows users to create, edit and publish musical scores. It is used by composers, arrangers and other professionals in the music space. It is also used by students and other parties. And finally, we have Avid Link, which is a free desktop and mobile app that offers its creative community the ability to find, network, connect, and collaborate with others interested in artistic pursuits.

Next to mine we have the Enterprise Software Solutions part of the business. This is based on the company’s MediaCentral platform and uses a suite of applications, modules and services in order to meet the needs of customers in this space. It also involves SaaS Solutions, which is a strategic partnership with Microsoft (MSFT) to provide Azure-certified solutions to support end-to-end cloud and hybrid deployments of news workflows. Finally, we have various offerings under the Integrated Solutions banner, such as Avid NEXIS, Avid S6, Live Sound and others. These focus on a variety of features such as shared storage, mixing and editing functionality, console systems for audio mixing for live sound reinforcement for concert halls and even production graphics solutions. . Apart from all these features, the company also offers maintenance contracts for its software and integrated solutions, professional services teams that help provide workflow design and consulting, learning services teams that provide public and private training courses associated with this space, and more.

Avid Technology Historical Financial Data

Author – SEC EDGAR Data

Over the past few years, Avid Technology’s revenue has been anything but excellent. Between 2017 and 2019, revenue decreased slightly from $419 million to $411.8 million. Then, in 2020, revenue dropped to $360.5 million due to the COVID-19 pandemic. Fortunately, this decline was short-lived, with sales rising to $409.9 million in 2021. Excluding the pandemic-related decline, it shows that revenues have remained in a fairly narrow range. But the downward trajectory of this one is slightly disconcerting. In recent years, this decline in revenue has been largely due to a decline in the Integrated Solutions portion of the business. Maintenance revenue remained within a fairly narrow range. So the real winner for the company was the subscription side. Revenue there fell from 11% of total sales in 2019 to 26.4% of sales last year. To put that into perspective, this category of sales went from $45.2 million in 2019 to $108.4 million last year. Management attributed the increase to new customers adopting its solutions and to customers switching from its perpetual product licenses to its subscription model. It’s a trend that management expects to see continue.

In the end, the corporate image was quite impressive. The company went from a net loss of $13.6 million in 2017 to a net profit of $41.4 million last year. This makes sense considering that the range of subscription offerings are much more cost effective than the company’s other offerings. In 2021, for example, subscription revenue brought with it an 86.2% gross margin. This compares to 81.2% for maintenance products and 40.7% for all other parts of the business. As net profit grew, other profitability metrics followed suit. Operating cash flow increased from $8.9 million in 2017 to $62.5 million in 2021. At the same time, the company’s EBITDA also increased from $48.4 million to $75.5 million over the same period.

Avid Technology Second Quarter 2022 Results

Author – SEC EDGAR Data

Looking to full-year 2022, management expects revenue to be between $425 million and $455 million. Midway through, this would translate to a year-over-year growth rate of 7.3%. So far, the company is already on track for this. In the first half, sales reached $198.3 million. This is 4.8% more than the $189.2 million generated during the same period last year. What this implies, however, is that the second half of the year must be stronger than the first. Regardless of the outcome, it’s also clear that the fastest growing part of the business, and in fact the only part growing this year, is subscriptions. Subscription revenue in the first half of the year reached $67.1 million. This represents a 44.7% increase from the $46.4 million generated a year earlier. Maintenance revenue, on the other hand, fell 7%, while perpetual licenses fell 38.5%. Integrated solutions revenue decreased slightly by 2.3%, and professional services and training revenue decreased by 9.5%.

2022 Avid Technology Guide

Greedy technology

Ultimately, management expects earnings per share to be between $1.37 and $1.53. Halfway through, that would translate to a net profit of $65.5 million. Meanwhile, EBITDA is expected to be between $83 million and $95 million, with a median reading of $89 million. No indication was given regarding cash flow from operations. But if we assume it will grow at the same rate as EBITDA should, then we should be anticipating a reading this year of $73.7 million. Using these numbers, we can see that the company is trading at a forward price/earnings multiple of 18.7. That’s down from the 29.5 reading we get using 2021 results. The price/operating cash flow multiple is expected to drop from 19.6 to 16.6, while the EV/EBITDA multiple go from 18 to 15.3.

AVID Stock Trading Multiples

Author – SEC EDGAR Data

Normally when I do an analysis of a company, I really like to compare that company to similar companies. However, I couldn’t really find any good comparable companies. Even those operating in the same industry seem to derive a significant portion of their revenue from hardware when it is clear that Avid Technology is much more focused on software and, in particular, subscriptions. What I can say is that in general these trading multiples are not particularly high, nor are they particularly low. They would normally indicate a business that is trading at or around fair value. And that’s especially true if the company in question has a history of growing profitability.

What makes me optimistic about the company are two things. In the short term, the company could benefit more from the news that it will enter the S&P SmallCap 600 list on September 1. Not only does this put the company on the radar of additional investors; it has the advantage of being in a position where certain index funds and mutual funds will have to or will be pressured to acquire the stocks to add to their holdings. Already, this announcement sent shares up 12% on August 30. In the long term, we have the advantage that the business continues to grow a high-margin part of itself. This means that the business is transforming in a positive way and, although revenues have been affected by declines in other categories, this transition is already proving beneficial from a cash flow perspective and, ultimately, s will prove beneficial from a revenue point of view.

Carry

Based on the data provided, I will say that I am definitely encouraged by what I see with Avid technology. Although the company has had a bumpy operating history from a revenue standpoint, cash flow is promising and so is net profit. The stocks are not trading at levels that I would consider unreasonable. On the contrary, the company appears to offer additional upside potential to investors. For this reason, I have decided to rate the company as a “soft buy” for the time being.