The Zacks Audio Video Production industry participants are concentrating on the premium segment of the branded products market for business growth. Sony Group Corporation SONY, Dolby Laboratories, Inc DLB and GoPro, Inc GPRO are likely to benefit from investments in cutting-edge technology solutions that create better communication experiences. The players also stand to gain as they increase focus on direct-to-customer sales channels. Rapid technological advances like 4K, 8K, and immersive audio formats are boosting demand for new devices, which bodes well for participants like GoPro and Dolby. Moreover, with streaming platforms becoming a way of life, these are driving the need for better home sound systems. This is likely to benefit participants like Dolby. A highly promotional environment and stiff competition from importers of comparatively low-priced devices are denting margins. Online accessibility of recording equipment and the availability of distribution channels on the Internet are additional headwinds. Also, tariff troubles could lead to increased production costs and also impact consumer spending.
Industry Description
The Zacks Audio Video Production industry comprises television, speaker, video player and camcorder manufacturers. It includes companies that offer gaming consoles, drones and high-end cameras for individuals and industrial markets. These firms provide state-of-the-art audio, imaging and voice technologies that enhance entertainment and communication experiences. Some industry participants develop audio and imaging products, including digital cinema servers and products for film production and entertainment industries. Apart from providing theatrical and television production services for cinema exhibitions, broadcast and home entertainment, these companies work with film studios, content creators, broadcasters and video game designers. Some prominent players are present in the music and image-based software markets worldwide.
4 Trends Shaping the Future of the Audio-Video Production Industry
Technological Advancement to Spur Growth: Over the years, the shift to digital technology catered to the demand for high-resolution video and reduced the problems of radio frequency and electromagnetic interference, making audio-visual systems more data-network friendly. Wireless transmission has enabled the seamless broadcast of audio and video signals through wireless data networks while enhancing productivity. Industry players have been offering services to diverse media producers. That said, easy online accessibility of recording equipment and the widespread availability of distribution channels on the Internet are hurdles.
Increasing Demand for Premium Entertainment: The industry performed well despite drastic changes in how media is consumed and distributed. The rise in demand for premium entertainment from record labels, TV producers and advertisers is likely to stoke profitable growth. Strong demand across all regions with a more direct-to-consumer, subscription-centric model bodes well for the industry participants.
Macroeconomic Headwinds Likely to Hurt Consumer Demand: The global macroeconomic uncertainty amid escalating trade tensions and tariffs and associated inflationary pressure are likely to keep consumer spending, especially discretionary purchases, in check. While companies keep investing in market share gains and supply chain resilience, a shortage of critical hardware components due to disruption in the supply chain could hurt revenues in the near term. Fluctuations in commodity pricing for different components are additional concerns. Elevated promotional activity to boost sales amid weak spending is also affecting the performance of these industry participants.
Aggressive Competition: In the United States, smart-connected televisions, microphones, and speaker enclosures are the most popular electronic devices among customers. However, U.S.-based manufacturers of audio and video systems face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. These firms face stiff competition across all end markets, often leading to intense price wars and margin contraction.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #3, which places it in the top 1% of more than 247 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries results from an upbeat earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2025 now stand at $1.31 against a loss estimate of $1.18 as of Dec. 31, 2024.
Before we present a few audio-video production stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms the Sector and S&P 500
The Zacks Audio Video Production industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite in the past year.
The industry has jumped 31.2% over this period compared with the S&P 500’s growth of 5.4%. The broader sector has surged 2.3% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
Price-to-sales is commonly used for valuing audio-video production stocks. The industry has a trailing 12-month P/S of 1.51X compared with the S&P 500’s 5.07X. It is below the sector’s trailing 12-month P/S of 2.05X.
In the past five years, the industry has traded as high as 1.88X and as low as 0.97X, with a median of 1.33X, as the chart below shows.
Price-to-Sales TTM Ratio (Past Five Years)
3 Audio Video Production Stocks Keep an Eye on
GoPro: Headquartered in San Mateo, CA, GoPro is one of the leading manufacturers of the world's most handy cameras, as well as mountable and wearable accessories.
Strength in subscription revenues, backed by improving retention rates, is buoying GPRO’s performance. Aggregate retention rates reached 69% in the fourth quarter compared with 67% in the year-ago period. It recorded 2.52 million subscribers (including 70,000 Premium+ subscribers), marking 1% year-over-year growth in the fourth quarter of 2024. To boost its subscriber base, it enhanced its subscription service through benefits and user awareness and aims to work more closely with its retail partners, both in North America and abroad.
Focus on operational efficiencies, introduction of a new 360-camera and expansion of supply chain outside of China are likely to boost gross margin performance in 2025. Operating expenses in the first quarter are forecasted to be $63 million (+/- $2 million), a 24% reduction year over year due to lower spending on wages, reduced marketing spend and lower non-recurring engineering expenses related to the completion of GP3. Operating expenses in 2025 are expected to be $250 million to $260 million, down $100 million from 2024, due to a 26% reduction in headcount and other expenses undertaken in 2024. This is likely to boost profitability.
At present, GPRO sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its 2025 bottom line is pegged at breakeven, unchanged in the past seven days. Shares are down 74% in the past year.
Price and Consensus: GPRO
Sony Group Corporation: Headquartered in Tokyo, Japan, Sony Group Corporation designs, manufactures, and sells several consumer and industrial electronic equipment. The company’s product roster comprises audio and video equipment, televisions, network services, game hardware and software, mobile phones, and image sensors. Sony is also active in producing, acquiring, and distributing recorded music and managing and licensing lyrics and music for songs.
Sony is poised to grow on strength across Game & Network Services (G&NS), Music and Financial Services amid woes in the Entertainment, Technology & Services (ET&S) unit.
Sony plans to grow the G&NS segment by expanding the stable installed base of PlayStation consoles and enhancing gaming experiences. Growth is also expected to come from expansion into PCs and improvement in first-party software titles. Sony expects to release key single-player game titles every year from fiscal 2025 onwards. Its G&NS strategy led to December quarter sales growth of 16% from a year ago. Hardware units and gaming content from partners also drove increases in the user base.
In December 2024, active users grew 5% year on year, reaching a record-breaking count of 129 million. Total playtime for PlayStation users also increased 2% year on year. PlayStation Plus revenue grew 20% year over year in U.S. dollars, driven by higher ARPU from users choosing premium tiers and price changes. Sony has raised its outlook for the G&NS segment. Sony now projects 8% revenue growth in the G&NS business this year compared with the 5.2% growth expected earlier, owing to the positive impacts of forex rates and strong sales from network services. Operating income for this business is now expected to grow 31% compared with the 22.3% rise expected earlier.
Financial Services revenues are benefiting from sales growth at Sony Life and higher investment gains from market volatility. The Music unit’s sales are backed by higher revenues from streaming services in Recorded Music and Music Publishing. Driven by momentum in Financial Services and G&NS units, it has raised its fiscal 2024 sales view to ¥13,200 billion from ¥12,710 billion.
At present, SONY carries a Zacks Rank #1. The Zacks Consensus Estimate for its fiscal 2024 bottom line is pegged at earnings of $1.23 per share, up 1 cent in the past seven days.
Price and Consensus: SONY
Dolby Laboratories: San Francisco-based Dolby Laboratories specializes in audio noise reduction and audio encoding/compression technologies to transform entertainment and communications at theaters, home, work and mobile devices.
Dolby’s performance is gaining from the increasing adoption of Dolby Atmos and Dolby Vision. Dolby continues to make significant strides in several key areas in the fiscal first quarter, including robust momentum in content creation and securing new partnerships, especially in music, movies sports and automotive.
Focus on strategic acquisitions bodes well. In June 2024, it announced the buyout of GE Licensing from GE Aerospace for $429 million in an all-cash transaction. GE Licensing, a leading innovator in patent licensing and management, is a subsidiary of GE Aerospace that designs, develops and produces jet engines, components and integrated systems for military, commercial and business aircraft. With this acquisition, Dolby expects to bolster its intellectual property portfolio through the strategic integration between its existing licensing businesses and GE Licensing's portfolio of video codec technologies (HEVC and VVC).
Dolby settled the acquisition of GE Licensing in the fourth quarter of fiscal 2024, strengthening its imaging patent portfolio. Earlier, management had noted that it expects the GE Licensing acquisition to add roughly $55 million to total revenues and boost non-GAAP operating margins and earnings in fiscal 2025. Apart from this, the acquisition of THEO Technologies in July 2024, worth $55 million, is aiding its Dolby.io offerings. With THEO, the company plans to address the growing demand for designing customized experiences in sports and entertainment.
At present, Dolby carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its fiscal 2025 earnings is pegged at $4.06 per share, unchanged in the past 30 days.
Price and Consensus: DLB
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