Synopsis

  • Avid Technology is a pioneer of the digital non-linear editing industry. 
  • The company is a leading provider of production, post-production and broadcast equipment to the media and entertainment industry.
  • Over the years the company has been losing the market share of its flagship products. 

Overview

Avid is a global, media and entertainment technology company that facilitates the creation, management, storing, distribution and monetization of film, television and music. It was founded in August 1987 by Bill Warner who was a former marketing manager at Apollo Computer. The company has 1400 employees across the world and 30,000 customers registered with the Avid Customer Association ( ACA). Its headquarters are in Burlington, Massachusetts and it has six regional offices in the US. The company has operations in North America, South America, Europe, the Middle East, Asia and Australia. It is listed on NASDAQ and is a Russell 2000 component. The current CEO is Jeff Rosica who is also the President of the company. 

Products

The main products of the company are Pro Tools, Media Composer and Sebelius. It also offers a comprehensive range of hardware and software solutions for video and audio production, post-production and broadcast. The company is a pioneer in the video post-production business and was the first company to introduce digital non-linear video editing in the late eighties. The company has received two Oscars, one Grammy and eighteen Emmy Awards so far for its contribution to the film and music industry. 

Financials

The Annual Revenue of the company has reduced from USD 511.93 million in 2016 to USD 409.944 million in 2021. The Operating Income has reduced from USD 64.015 million in 2016 to USD 46.263 million in 2021. The Net Income after Taxes has reduced from USD 46.502 million in 2016 to USD 38.952 million in 2021. The above observations indicate the performance of Avid Technology has been deteriorating over the last five years. The price to book value of the company has been negative over the last five years indicating that the assets of the company are not enough to pay the liabilities of the company. The company has a Stockholders deficit of USD 124.074 million which means that there is zero effective equity contribution from the shareholders and the company’s assets and operations are being financed by borrowings and debt. The price to earnings ratio of the company is 50.37 at a stock price of USD 36.77 on 24th March 2022, indicating a very high valuation. The record of the company over the last decade has been very inconsistent. Years of substantially high profits have been followed by years of very low profits and even losses. There is no consistent pattern in the company’s performance. The company does not have any owner’s equity (it got wiped off in 2012) and is struggling with high debt ( USD 170 million as of 31st December 2021). It has been struggling with debt for the past five years. If the company can gradually pay off all the debt and build up the owner’s capital it would make some sense to buy shares of this company. 

Risk Factors and Future Prospects

The company is investing in SAAS technologies and looks forward to cloud-based technologies to provide better solutions to customers and also to increase its revenues. Its focus will be on subscription offerings, maintenance contracts and long term agreements to generate regular revenues. There is a constantly increasing demand for audio and video content and Avid expects more demand for its products from content creators. However, it is not going to be an easy ride for Avid. Avid has many strong competitors both in the Audio and Video production as well as Broadcast and Media categories which include Ableton AG, Adobe Systems, Apple Inc, ChyronHego Corporation, Dell Technologies Inc, EVS Corporation etc. Avid has consistently lost market share over the years for Pro Tools and Media Composer which are its flagship products. In September 2021, the company announced it may buy back common stock worth USD 115 million but to date, no share repurchase has taken place. The announcement may have resulted in an increase in the price of the shares to the current level. Based on some employee reviews, employees of the company suggest that the company is a good place to work but there is no job security and the opinion about the management is often mixed. Instances are suggesting that sometimes there is no work and some doubt that the company will be around after five years. Such reviews by employees and ex-employees don’t present a promising picture of the company. 

Key Takeaways

The company’s valuation is very high ( P/E = 50.37 @ $ 36.77 on 24th March 2022) probably because of the buyback announcement which never took place and the increase in earnings per share in 2021. Although there has been an increase in the Net Income and earnings per share in 2021, it is an isolated incident. The performance of the company in terms of profits has been highly unpredictable in the past ten years. The company does not have any owner’s equity and is saddled with debt. Most importantly the company has been losing the market share of its flagship products. We don’t recommend that you invest in this company at this time. Only if the company can sustain 2021 performance over the next two years it can be considered an attractive proposition for purchase. Until then, investors can continue holding the stock and see if the performance improves over the next two years. 

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