3 Audio Video Stocks Worth Watching in a Thriving Industry
The companies within the Zacks Audio Video Production industry are concentrating on the premium segment of the branded products market for business growth. Sony Corporation SONY, GoPro GPRO and LiveOne LVO are likely to benefit from investments in cutting-edge technology solutions that create better communications experience. Easing supply chain issues are likely to aid the performance of these companies. However, muted consumer demand amid a weak macroeconomic environment globally remains a concern, at least in the near term. Fierce competition from importers of comparatively low-priced devices puts pressure on these industry players. Online accessibility of recording equipment and the availability of distribution channels on the Internet are a headwind.
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.
What's Shaping the Future of Audio Video Production Industry?
Technological Advancement to Spur Growth: Over the years, the shift to digital technology has 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 broadcast of audio and video signals through wireless data networks seamlessly while enhancing productivity. The 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 pose challenges.
Increasing Demand for Premium Entertainment: The industry has 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. Demand for video post-production services will increase in the coming days as the downstream market continues to grow. Strong demand across all regions with a more direct-to-consumer, subscription-centric model bodes well for the industry participants.
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 persistently 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. The companies will likely benefit from investments in cutting-edge technology solutions that create a seamless communications experience.
Macroeconomic Headwinds Likely to Hurt Consumer Demand: The global macroeconomic weakness, geopolitical instability in Europe and inflationary pressure is likely to affect consumer demand, especially discretionary purchases. While the companies keep investing for market share gains and supply chain resilience, a shortage of critical hardware components due to supply chain disruptions (although disruptions are easing somewhat) is expected to hurt 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 additional concerns.
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 #88, which places it in the top 35% of more than 251 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 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 the Sector & S&P 500
The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite in the past year.
The industry has gained 20.4% over this period compared with the S&P 500’s increase of 19.4%. The broader sector has gained 14.3% 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 1.17X compared with the S&P 500’s 3.80X. It is below the sector’s trailing 12-month P/S of 1.90X.
In the past five years, the industry has traded as high as 1.43X and as low as 0.63X with a median of 0.96X, as the chart below shows.
Price-to-Sales TTM Ratio (Past Five Years)
3 Audio Video Production Stocks to Keep an Eye on
LivOne: Headquartered in Beverly Hills, CA, LiveOne provides a platform for live stream and on-demand audio, video and podcast/vodcast content in music, comedy and pop culture and is the owner of LiveXLive, Slacker Radio, PodcastOne and React Presents, among others.
The company’s performance is driven by the robust LiveOne audio business, including Slacker Radio and PodcastOne. The audio business is witnessing growth in paid members through partnerships, advertising and sponsorships. Synergies from acquisitions and cost-containment efforts bode well.
At present, LVO carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for its current-year earnings is pegged at a loss of 6 cents per share. Shares of the company have gained 52% in the past year.
Price and Consensus: LVO
Sony: Headquartered in Tokyo, Japan, Sony 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. Sony actively produces, acquires and distributes motion pictures and television programming and operates television and digital networks. Further, the company has a global presence in the music and image-based software markets.
Sony’s performance is benefiting from continued strength in the Games & Network segment. The company now expects to sell more than 25 million units of its PlayStation 5 in the current year. Strength in Music, Pictures, and Imaging & Sensing Solutions segments is a tailwind. The Music segment is being driven by higher recorded music and publishing sales from paid subscription streaming services. The Pictures segment is gaining from higher series deliveries and Industrial Media and Bad Wolf acquisitions. Frequent product launches and strategic collaborations bode well. The company expects sales of ¥11,500 billion for fiscal 2023.
At present, Sony carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings is pegged at $5.65 per share. The long-term growth rate stands at 4.7%. Shares of the company have gained 22.3% in the past year.
Price and Consensus: SONY
GoPro: Headquartered in San Mateo, CA, GoPro is one of the world’s leading manufacturers of handy cameras. GoPro’s performance has been benefiting from its increasing subscriber base and expanding direct-to-consumer business.
The company’s subscriber base is gaining from the increased conversion of retail customers into GoPro subscribers through the GoPro app. In the first quarter, subscribers grew 36% year over year. Also, the introduction of a premium GoPro subscription tier in the fourth quarter of 2023 is likely to further boost its subscriber base. The company is also revamping its go-to-market strategy and is working toward expanding retail presence to drive unit growth.
At present, GPRO carries a Zacks Rank #3. The consensus estimate for its current-year earnings is pegged at 14 cents per share.
Price and Consensus: GPRO
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