Should you buy, hold or sell Audinate shares?
Audinate Group Ltd (ASX: AD8) has evolved from an audio-focused networking solution provider into a global AV networking leader, demonstrating the transformative power of technology in this highly specialised market.
Founded by Aiden Williams, the company has significantly reshaped the AV industry through its innovative approach, particularly the development and commercialisation of its Dante technology, becoming the de facto standard in the audio industry today.
Despite this remarkable success, we believe the story is far from over as Audinate continues to utilise its dominant position as a springboard for broader market penetration.
What does Audinate do?
Audinate is a leader in the audio-visual (AV) networking industry, a position solidified with the introduction of its breakthrough technology, Dante.
This technology distinguished itself from others by delivering exceptional synchronisation and low latency in audio transmission over a standard ethernet network, profoundly influencing the industry.
While Dante was a commercial success and propelled Audinate to an envious growth position, marked by significant revenue growth over the past five years, the company and management have not confined themselves solely to this segment of the market.
The Dante technology, enabling synchronised, low-latency audio over networks, had broader applications in the industry where the video is a natural extension to its offering.
By expanding the applicability of its offering to encompass other aspects of the AV experience, the company has been able to achieve further growth by appealing to both existing and new customers.
The increase in both the breadth and depth of its addressable market has created a virtuous cycle, deepening its competitive position and moat.
For example, over the past five years, the company has grown the number of OEMs and Dante-enabled products at a healthy rate year-on-year.
While still in its infancy, its video products have started to grow strongly, with the company rapidly expanding several OEMs now incorporating Dante into their video products.
How have Audinate shares performed?
Following a period of uncertainty, where COVID-related disruption impacted the supply of chips used in its Dante products, the Audinate share price has ascended to new all-time highs.
While some have questioned the sustainability of this rise, we continue to find the investment case for Audinate compelling.
The company's latest financial report highlights several aspects of the business that we think will drive further positive changes in the underlying economics of the company going forward.
The first is the company's ongoing commitment to continuing innovation.
The introduction of next-generation products like Dante Pro S1 and the strategic launch of Dante Director, Audinate's cloud-based remote management platform, highlight the company's commitment to innovation.
These developments underscore the importance of adaptability and strategic foresight in expanding into new market segments and products, while continuing to provide additional value to end customers.
Audinate also continues to focus on improving the scalability of its cost base, unlocking additional operating leverage in its business in the process.
Adding engineering headcount in the Philippines is one such example and is a strategic move that should bolster its innovation capacity and operational efficiency.
Should you buy, hold or sell shares in Audinate?
Audinate's journey underscores how niche mastery, like audio networking, complemented by ventures into new areas like video, can support ongoing growth while continuing to grow its total addressable market.
The anticipation for the release of new video and cloud products, including Dante Director, highlights Audinate's commitment to expanding its product ecosystem.
The gradual shift from a hardware-based offering to software based, in our view, provides for a more competitively defensible, ecosystem-based product offering. It is for these reasons that Audinate remains a sound investment. Buy.
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