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3 Audio Video Stocks to Watch in a Challenged Industry

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·7 min read
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The pandemic is still affecting companies in the Zacks Audio Video Production industry. Declining consumer demand and supply chain disruptions are a major concern. Also, fierce competition from importers of comparatively low-priced devices weighs on these industry players. Online accessibility of recording equipment and the availability of distribution channels on the Internet remain headwinds. The companies are concentrating on the premium segment of the branded products market for business growth Sony Corporation SONY, Sonos SONO and GoPro GPRO are likely to benefit from investments in cutting-edge technology solutions that create better communications experience.

Industry Description

The Zacks Audio Video Production industry comprises manufacturers of televisions, speakers, video players and camcorders. 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 a host of services for theatrical and television production for cinema exhibition, 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.

What's Shaping the Future of Audio Video Production Industry

Aggressive Competition: In the United States, smart-connected televisions, microphones and speaker enclosures are customers’ most popular electronic devices. But the U.S. manufacturers of audio and video systems continue to face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. The firms face stiff competition across all end markets, often leading to intense price wars and margin contraction. Nevertheless, the companies are likely to benefit from investments in cutting-edge technology solutions that create a seamless communications experience.

Changing Consumer Preferences: Rapid changes due to the technological obsolescence of products lead to many challenges as the ecosystem transforms in the digital age. The fast-evolving industry has called for innovation, which necessitates the participants to continuously develop ground-breaking technology to stay ahead of the curve. Keeping up with changing consumer preferences, licensee demand and shifting standards make the industry vulnerable to operating risks. While the companies are coming up with compelling offerings to broaden their customer base, they face risks associated with new product development.

Pandemic-induced Supply Chain Troubles Continues to Hurt Businesses: The pandemic continues to deal a blow to the industry, with companies seeing a substantial decline in cinema product sales. Theater closures and lower sales for television productions are impairing the overall performance. While the companies keep investing for market share gains and supply chain resilience, a shortage of critical hardware components due to supply chain disruptions is expected to hurt their revenues in the near term. Unit volume shipments across end markets and devices are expected to decline. Fluctuations in commodity pricing for different components are other concerns.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #192, which places it at the bottom 24% of more than 252 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak 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 2 to 1.

Before we present a few audio-video production stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector, Lags S&P 500

The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the S&P 500 composite in the past year.

The industry has lost 10% over this period against the S&P 500’s decline of 5.7%. The broader sector has plunged 35%.

One-Year Price Performance

Industry's Current Valuation

Price-to-Sales is commonly used for valuing audio-video production stocks. The industry currently has a trailing 12-month P/S of 1.07X compared with the S&P 500’s 4.04X. It is also below the sector’s trailing 12-month P/S of 1.94X.

In the past five years, the industry has traded as high as 1.43X and as low as 0.63X with a median of 0.83X, as the chart below shows:

Price-to-Sales TTM Ratio (Past Five Years)

3 Audio Video Production Stocks to Keep an Eye on

Sony: 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, displays, semiconductors, electronic components, gaming consoles, computers, computer peripherals and telecommunication equipment. Additionally, Sony is active in the production, acquisition and distribution of motion pictures as well as television programming, along with the operation of television and digital networks. Further, the company has a presence in the music and image-based software markets globally.

Sony is focused on the premium segment of the branded products market to maximize growth. Its music experience, 360 Reality Audio, introduced to make listeners feel immersed in sound from all directions, bodes well. For fiscal 2022, the company expects sales to improve 15% due to higher Game & Network Services (G&NS) and Imaging & Sensing Solutions (I&SS) segment sales. The Zacks Consensus Estimate for its current-year earnings is pegged at $6.28 per share. The stock has, however, lost 6.4% in the past year.

At present, Sony carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: SONY

Sonos: Headquartered in Santa Barbara, CA, Sonos is one of the world’s leading sound experience brands. The company is focused on its three strategic initiatives — expanding its brand, boosting its offerings and driving operational excellence. It benefits from robust demand for its products in the growing global audio market.

Expanding direct-to-consumer initiatives, brand image and extended partner ecosystem support its growth strategy. For fiscal 2022, Sonos expects revenues to increase 14-16% year over year in the range of $1.95-$2 billion.

At present, SONO carries a Zacks Rank #3. The consensus estimate for its current-year earnings is pegged at $1.09 per share. The stock has lost 35.4% in the past year.

Price and Consensus: SONO

GoPro: Headquartered in San Mateo, CA, GoPro sells cameras, drones and wearable accessories in the United States and globally. The company is committed to producing the world’s most versatile cameras and imaging software solutions.

GoPro’s performance is driven by robust sales of premium products across retail and direct-to-customer sales channels. The company is focused on shifting the camera product mix to the high-end and boosting subscription revenues by converting retail customers into GoPro subscribers through the GoPro app. Strong demand across all regions also bodes well. It has been expanding its footprint in emerging markets and is focused on scaling up its customer relationship management efforts. Frequent new product launches are expected to boost the top line.

At present, GPRO carries a Zacks Rank #3. The consensus estimate for its current-year earnings is pegged at 93 cents per share. The stock has lost 43.8% in the past year.

Price and Consensus: GPRO




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