3 Audio Video Stocks Worth Watching in a Flourishing 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, Sonos SONO 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 is a concern, at least in the near term. 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.
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. However, 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 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.
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 #111, which places it in the top 44% of more than 252 Zacks industries.
The group’s Zacks Industry Rank, which is the average 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 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 7.2% over this period compared with the S&P 500’s increase of 15%. The broader sector has gained 8.2% 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 0.99X compared with the S&P 500’s 3.84X. It is below the sector’s trailing 12-month P/S of 1.88X.
In the past five years, the industry has traded as high as 1.43X and as low as 0.62X with a median of 0.98X, as the chart below shows.
Price-to-Sales TTM Ratio (Past Five Years)
3 Audio Video Production Stocks to Add to Watchlist
Sonos: Headquartered in Santa Barbara, CA, Sonos operates as a consumer electronics company primarily involved in manufacturing smart speakers with immersive sound experiences.
Sonos’ top-line performance is gaining from the healthy uptake of Era 100 and Era 300 speakers. The company witnessed solid momentum in the Americas region owing to new product launches and promotional activity. The company is likely to benefit from secular growth trends in the global audio and video market. The company launched five products in fiscal 2023 and expects to roll out more products throughout the year. The flywheel initiative is helping the company expand its customer base and monetize the existing customer install base by expanding its geographic reach. However, the company's performance will likely be affected by inventory tightening by retailers in Europe and the APAC region.
Currently, SONO carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for its current-year earnings is pegged at 96 cents per share, up 4.3% in the past 60 days.
Price and Consensus: SONO
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. The company has a global presence in the music and image-based software markets.
Sony’s top-line performance is driven by continued strength in the Games & Network segment. The company expects to sell more than 25 million units of its PlayStation 5 in the current year. SONY sold 3.3 million units of PS5 in first quarter of fiscal 2023, up 38% year over year. Strength in Music, Financial Services and ET&S segments are other tailwinds. The Music segment benefited from higher recorded music and publishing sales from paid subscription streaming services. Frequent product launches and strategic collaborations bode well. The company also raised overall guidance for fiscal 2023 revenues. It now expects sales of ¥12,200 billion compared with the earlier guidance of ¥11,500 billion.
At present, Sony carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings is pegged at $5.61 per share. The long-term growth rate stands at 4.3%. Shares of the company have gained 7.7% in the past year.
Price and Consensus: SONY
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. Driven by strong fiscal first quarter results, the company raised fiscal 2024 revenue guidance. The company now expects revenues to be in the range of $123-$130 million for fiscal 2024.
LVO carries a Zacks Rank #3 (Hold).
The consensus estimate for its current-year earnings is pegged at earnings of 6 cents per share. Shares of the company have gained 114.3% in the past year.
Price and Consensus: LVO
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