For Immediate Release
Chicago, IL – November 29, 2023 – Today, Zacks Equity Research discusses Panasonic Holdings Corp. PCRFY, Sonos SONO and GoPro GPRO.
Industry: Audio Video Production
Muted consumer demand amid a weak macroeconomic environment globally is a concern, at least in the near term, for companies within the Zacks Audio Video Production industry. Fierce competition from importers of comparatively low-priced devices puts pressure on these players. Online accessibility of recording equipment and the availability of distribution channels on the Internet are a headwind.
Nonetheless, industry participants are concentrating on the premium segment of the branded products market for business growth. Panasonic Holdings Corp., Sonos and GoPro are likely to benefit from investments in cutting-edge technology solutions that create better communications experiences. Easing supply chain issues are likely to aid the performance of these companies.
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 the Audio-Video Production Industry?
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. 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 will likely 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 volatile supply chain dynamics 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.
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 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. 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.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #239, which places it in the bottom 5% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average Zacks Rank of all the member stocks, indicates bleak 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 you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms the Sector & 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 gained 5.1% over this period compared with the S&P 500’s increase of 15.8%. The broader sector has gained 8.6% in the said time frame.
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 0.97X compared with the S&P 500’s 3.83X. It is below the sector’s trailing 12-month P/S of 1.83X.
In the past five years, the industry has traded as high as 1.46X and as low as 0.63X with a median of 1.01X.
3 Audio Video Production Stocks to Add to Watchlist
Panasonic Holdings Corporation: Japan-based Panasonic is a worldwide leader in the development and manufacture of electronic products for a wide range of consumer, business and industrial needs.
The company’s Automotive segment is likely to benefit from a recovery in automobile production. Increased sales in Avionics and Blue Yonder, along with recovery in the aviation industry, are major tailwinds for the Connect business segment. However, weakening conditions for consumer electronics businesses and a muted environment for HVAC businesses (especially A2W in Europe) remain concerns.
Currently, PCRFY carries a Zacks Rank #3 (Hold). 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 $1.23 per share, up 23% in the past 60 days. The long-term EPS growth rate stands at 24.4%.
PCRFY’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average surprise being 438.3%. Shares of PCRFY have surged 15.5% in the past year.
Sonos: Headquartered in Santa Barbara, CA, Sonos operates as a consumer electronics company primarily involved in manufacturing smart speakers with immersive sound experiences.
Sonos’ flywheel initiatives are likely to help it expand its customer base and monetize the existing customer install base by expanding its geographic reach. It expects to generate more than $100 million from new product introductions in fiscal 2024. Solid demand for Era 100 and Era 300 speakers is a tailwind. The launch of Move 2 will further help the company to expand its footprint in the portable speaker market. The company expects the fiscal 2024 gross margin to benefit from lower component costs and a favorable product mix.
However, reduced customer demand in Europe and the APAC region amid volatile macroeconomic conditions coupled with stiff competition and unfavorable forex movement remain headwinds.
Currently, SONO carries a Zacks Rank #3. The Zacks Consensus Estimate for SONO’s fiscal 2024 earnings per share is pegged at 99 cents, unchanged in the past seven days. SONO’s long-term earnings growth rate is 3.9%.
GoPro: Headquartered in San Mateo, CA, GoPro is one of the leading manufacturers of the world's most handy camera and an enabler of some of today's most immersive and engaging content.
GoPro’s performance is being cushioned by a higher subscriber base and an expansion of its retail presence. The company’s subscriber base rose 20% year over year in the last reported quarter. It also plans to restore its retail presence to pre-pandemic levels. The introduction of a new Quik desktop app and a premium GoPro subscription tier will boost subscriber growth. Management now suggests 2023 revenues and unit sales to be ahead of its earlier guidance. Revenues are anticipated to be $1.04 billion (+/-$5 million) compared with the prior projection of $1.03 billion (+/-$30 million).
However, higher sales of lower-margin entry-level cameras are affecting margin performance. The company expects uncertain macroeconomic conditions might keep consumer spending under pressure in the fourth quarter.
At present, GoPro carries a Zacks Rank #3. The Zacks Consensus Estimate for its current-year bottom line is pegged at a loss of 19 cents per share, unchanged in the past 60 days per share.
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