3 Audio Video Stocks Worth Watching in a Booming Industry

3 Audio Video Stocks Worth Watching in a Booming 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, Dolby Laboratories DLB and GoPro GPRO 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, 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 owing to the Ukraine war 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 #68, which places it in the top 27% of more than 248 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 Lags S&P 500, Outperforms the Sector

The Zacks Audio Video Production industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the S&P 500 composite in the past year.

The industry has plunged 15.6% over this period against the S&P 500’s decline of 13.5%. The broader sector has declined 23.3%.

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 1.07X compared with the S&P 500’s 3.47X. 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 0.93X, as the chart below shows.

Price-to-Sales TTM Ratio (Past Five Years)

3 Audio Video Production Stocks to Keep an Eye on

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 benefited from improving sales in the company’s Games & Network (GN&S) segment. The company now expects to sell more than 19-million-unit sales for its PlayStation 5 in the current year. Also, continued strength in Music and Entertainment, Technology & Services (ET&S) segment augurs well. The company’s Music segment benefited from higher recorded music and music publishing sales from paid subscription streaming services. Frequent product launches and strategic collaborations bode well.

At present, Sony carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

The Zacks Consensus Estimate for its current-year earnings is pegged at $5.36 per share. The long-term growth rate stands at 5.9%.

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 is benefiting from an increasing its 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 fourth quarter, the company’s subscriber base rose 43% year over year to 2.25 million. The company plans to invest heavily in synced mobile, cloud and desktop software in 2023 to boost its subscriber engagement and float a higher-priced subscription tier. Frequent product launches are expected to act as tailwinds. However, the company expects channel inventory to decline owing to inventory tightening by retail and distribution partners in the near term.

At present, GPRO carries a Zacks Rank #3 (Hold). The consensus estimate for its current-year earnings is pegged at 26 cents per share.

Price and Consensus: GPRO

Dolby Laboratories: San Francisco, CA-based Dolby Laboratories specializes in audio noise reduction and audio encoding/compression technologies to revolutionize entertainment and communications at theaters, home, work and mobile devices. Dolby’s performance is benefiting from the increasing adoption of Dolby Atmos, Dolby Vision, and new imaging patents. The company expects revenues from these businesses to grow in the range of 15-25% in fiscal 2023, driven by continued momentum in broadcast, mobile and other markets. The company is likely to benefit from Dolby.io, which enables developers to build immersive online experiences. However, lower shipments in PC, broadcast, consumer electronics and gaming are denting Dolby’s performance. As a result, the company expects its audio revenues to decline by mid-single digits during fiscal 2023.

At present, Dolby carries a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings is pegged at $3.44 per share. The long-term growth rate stands at 16%.

Price and Consensus: DLB

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