Australian Securities Exchange-listed Audinate Group is a small-cap audio visual (AV) software solutions company, and a global supplier of digital media networking for the profession al AV industry. Audinate’s flagship solution, Dante, transforms audio and video connectivity by replacing all connections with a computer network, by sending video and hundreds of channels of audio over convenient cables with perfect digital fidelity.
The thesis for investing in Audinate, founded by Aidan Williams, a self-styled amateur musician, is that it is a company with a great product and a large addressable market for future growth.
Audinate’s key product, Dante, is a market leader in its niche. This media networking solution is widely used in the profession al AV industry globally, with over 4,000 types of products enabled by it and over 660 OEM (original equipment manufacturer) brands licensing Dante products. It is also found in millions of devices globally, ranging from universities and recording studios to theatres and zoos. In terms of competitors, Dante has a whopping 12 times the market adoption of its closest competitor, Ravenna. This implies that it is almost everywhere and has a very strong moat, which is great news if the company itself is profitable. And it is.
Looking at the network AV market, the total addressable market opportunity is over US$2 billion ($2.7 billion). Audinate’s current share of the audio market is estimated to be around 9%, with opportunities in the audio, video, and software segments.
For audio, there is revenue opportunity for audio products such as speakers, microphones, amplifiers and signal processors. Cameras, displays, projectors, signal routing and switching products represent revenue opportunities in the video market, while management control software such as the Dante Domain Manager represents revenue opportunity for the software segment.
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The great thing about Audinate’s Dante is that there is additional revenue opportunity for the software segment, which is incremental to the potential US$2 billion market. “The big thing that’s next for Dante is really around connecting AV devices properly to the internet at large,” says Williams in an interview published on the AVNetwork website.
Key business performance metrics are also nothing short of impressive for Audinate. Comparing 2024 to 2023, the AV professionals trained on Dante grew 22%, downloads of Dante controller set-up tools grew 13%, units of retail software sold to AV professionals was up 22%, customers shipping Dante-enabled products was up 15% and the marketing database grew 20%.
It is imperative that smaller companies keep their promises and achieve goals set out and promised, because it reflects good discipline from the management. Audinate was able to achieve its FY2024 objectives both business-wise and financial-wise. It is also important that the objectives make sense and are pertinent to the business.
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The first objective was to double the video ecosystem in terms of video units used or shipped, which was achieved comfortably due to strong growth in the second half of 2024. The second was to release additional video and cloud products, which was achieved through the next-generation Dante AV Ultra and Dante Director, which is a software-as-a-service product. Audinate also saw success with its Dante Connect cloud offering, as there were successful conversions of flagship customers. Financials-wise, Audinate met its goal of improving profitability and cash flow through growth in operating and free cash flow, which both almost doubled from the previous comparable period.
One of Audinate’s focuses moving forward is to conduct strategic M&As, where it establishes a framework to target businesses. To do this, the company raised capital to strengthen its balance sheet and appointed a chief strategy officer to provide executive focus on M&A. The larger Audinate grows, the wider the reach of Dante, and eventually, this small-cap company will be able to grow tremendously, propelled by its disciplined management and strong key product.
In Audinate’s FY2024 results, revenue was up 31% y-o-y, while gross profits and ebitda were up 35% and 85%, respectively. Gross profit margins also improved from 72.1% to 74.3% over the same period, while total units shipped grew 34%. In terms of financial health, the company is very healthy, with a cash and current ratio of over eight times and a net cash position. Relative valuation-wise, Audinate trades at a 14% and 7% discount for its forward P/E and EV/Revenue ratios, respectively, and a 4% premium for its forward P/B ratio.
Sentiment-wise, there are three “buy” calls, five “hold” calls and no “sell” calls for Audinate from analysts with an average target price of 40% above its current trading price of A$7.22 ($6.14). Based on our in-house valuations (see Charts 1a and 1b), we think the fair value for the company is A$9.42.
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