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 DLB and GoPro 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. However, muted consumer discretionary spending amid weak global macroeconomic conditions is a concern. 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.
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 weakness and inflationary pressure are likely to keep consumer spending, especially discretionary purchases, in check. While the companies keep investing for market share gains and supply chain resilience, a shortage of critical hardware components due to volatile supply chain dynamics is expected to 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 #19, which places it in the top 8% of more than 250 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.
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.
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 loss estimates for 2024 now stand at 94 cents against a loss estimate of $1.06 as of Sept. 30, 2024.
Industry Underperforms 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 inched up 1% over this period compared with the S&P 500’s growth of 24.4%. The broader sector has surged 13% 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 1.38X compared with the S&P 500’s 5.60X. It is below the sector’s trailing 12-month P/S of 2.15X.
In the past five years, the industry has traded as high as 1.86X and as low as 0.83X, with a median of 1.31X, as the chart below shows.
Price-to-Sales TTM Ratio (Past Five Years)
3 Audio Video Production Stocks Keep an Eye on
Dolby: 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.
Continued momentum in Dolby Atmos, imaging patents and Dolby Vision is driving Dolby’s performance. Dolby Vision and Dolby Atmos technologies are witnessing rapid adoption in automotive, TV and mobile verticals.
The company continues to focus on strategic acquisitions. 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. 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 fiscal fourth quarter of 2024, strengthening its imaging patent portfolio. Management anticipates 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.
For fiscal 2025, the company projects Dolby Atmos and Dolby Vision to achieve approximately 15% organic growth, while imaging patents are expected to grow around 15%, as tougher comparisons in the imaging patents segment partly offset the revenues from the GE Licensing acquisition.
Declining box office performance and weak global consumer electronics sales continue to weigh on Dolby’s performance. Core audio revenues are expected to remain flat, aligning closely with market trends for device shipments.
At present, Dolby 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 fiscal 2025 earnings is pegged at $4.05 per share, unchanged in the past 30 days.
Price and Consensus: DLB
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.
GoPro is committed to driving growth through a strategic overhaul. This includes expanding its retail presence, introducing more affordable entry-level cameras and implementing strict cost management measures. Though the company expects 2024 operating expenses to be approximately $360 million (+/- $2 million), it is forecasting a $110 million (at the midpoint of the guidance) reduction in expenses in 2025. Operating expenses in 2025 are expected to be $250 million (+/- $5 million), stemming from a 26% reduction in headcount and other expenses undertaken in 2024.
It recorded 2.56 million subscribers (including 54,000 Premium+ subscribers), marking 2% year-over-year growth at the end of the third quarter of 2024. Management envisions subscribers at 2024-end to be up 2% to 2.55 million. 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.
Delays in the launch of new products, muted consumer spending in the absence of promotional activity and declining camera sales at GoPro.com remain concerns.
At present, GPRO carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its 2025 bottom line is pegged at earnings of 5 cents per share, unchanged in the past seven days.
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 well-poised to gain from healthy demand across Games & Network Services (G&NS) and Music and Imaging & Sensing Solutions units amid softness in the financial services unit. The G&NS unit is benefiting from favorable forex impact, higher sales from network services (PlayStation Plus) and rising sales of non-first-party titles. Momentum in recorded music and music publishing sales is aiding the Music unit. Steady growth in operating income bodes well. It has raised its revenue outlook for fiscal 2024 from ¥12,610 billion projected earlier to ¥12,710 billion due to the strengthening of the G&NS unit.
For fiscal 2024, sales from G&NS are likely to be ¥4,490 billion compared with the prior view of ¥4,320 billion. Lower hardware sales and stiff rivalry are woes. Demand for mobile sensors is likely to be affected by changes in the production plan of a key customer.
At present, SONY carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its fiscal 2024 bottom line is pegged at earnings of $1.20 per share, unchanged in the past seven days.
Price and Consensus: SONY
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
