Many thanks for the note,@Valueinvestor0909 and subsequent comments - extremely insightful!

Had a quick look at the chart ahead of the results:

• There is clear long term, almost 6 years, support at current levels of ~$6.70 to ~$7.00, which helps explain the brakes being applied at this level - if market reaction is muted/happy, then the price should probably stay at these levels, plus minus, with upside limited to ~$9.00 given the long term up trend line
• If the price tanks tomorrow, the next floor could be as low as ~$4.95 to~ $5.33, where long-term support goes back to May 2020, a decent ~4 year window

I will likely look to top up around ~$5.00, if it gets to those levels, but will otherwise sit tight and do nothing until the storm passes.

Discl: Held IRL

Great article @Valueinvestor0909 - crazy brave putting your thoughts out into the wild before reality strikes, I like it!

@mikebrisy your modelling of the bullwhip effect makes sense to me. If that plays out it would be a strong validation of the much discussed demand pull forward being the driver of the revenue roller coaster which should transition back into a climb in FY26.

I like the distinction between events outside managements control vs their operational and strategic performance @Valueinvestor0909.

I have also thought about the cyclical vs structural factors at play here.

I think management shot themselves in the foot with their messaging (pull forward of demand not highlighted until it slammed into reverse) and actions (Director selling, Cap raise at much higher prices before downgrades) so they will likely not regain their halo any time soon.

What really matters

One thing I track closely is the growth in OEM adoption in audio and especially in video.

If you can look past the next half and even next year, the value creation for AD8 should be from building the de facto operating system for the Pro AV industry. That’s not a secret but seems to have been overshadowed by recent downgrades, management missteps and analyst saying things like it’s fundamentally selling hardware, is a cyclical business, prone to inventory issues (obsolescence), etc.

So things like the switch to software over CCM, and the build out of control and management software including subscription revenue from these are significant in the longer term but meaningless (or even negative – hitting revenue and opex) in the short term.

These moves help grow adoption, add to scale, and extend Dantes network effect, so if they continue to build, my estimate of value is growing even if revenue today is falling.

I’ve been waiting on the 2025 Audio & Video adoption numbers (2024 really but they call it 2025) from RH Consulting - https://rhconsulting.uk/blog/ but they’re not in yet.

So will need to see what AD8 say about their growth in Video adoption – this will be lumpy for a while as still off a small base.

Looking longer term

If you’re a believer in the long term story for AD8 and think they are on track to become the operating system for the industry – at which point they will monetise it, the cyclical weakness should not move the dial on that thesis.

So cyclical weakness could present an opportunity for longer term investors to buy from short term holders. It may even delay competitors (NDI in Video) from spending on their offering, which would be a longer term positive for AD8.

The H1 numbers will look awful, even if they come in on guidance and this may shock the market - again. A lot of the market reaction will likely be down to outlook for FY25 which management indicated they will deliver tomorrow. I’ll be looking more closely at the OEM adoption numbers and other factors that I think indicate where they’ll be in another 5-10 years. Management will likely be keen to highlight these so we may get some more transparency.

I may be taking Buffett too literally when he said “The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they're on the operating table.”

If AD8 shows strong Long Term vitals (Control and Management software dev and sales, video adoption, etc) but weak H1 revenue (or gross profit) and tepid outlook, etc I expect another buying opportunity.

If they announce a Strategic Review, CEO transition, pause in Video Dev, etc, etc, I’ll likely be selling into a rush for the exits.

Disc Held

@Valueinvestor0909 nice note. A few comments as I get my own eye in for Monday's result.

1, $AD8-specific

At the last trading update, $AD8 reported 1Q GM of US$7.2m (A$10.6m) and guided that because of the persisting overhang of inventory with customers:

"These headwinds are expected to continue into Q2 FY25, leading to a Q2 gross profit run rate in line with Q1 FY25."

(why they had to use the term "run-rate" I never understood, other than to add some murkiness to the guidance!)

If they are right, that should lead to a 1H FY25 GM of US$14.4m, which will as you write compares very negatively with 1H FY24 which was US$21.8m

Given that there hasn't been any further trading update ahead of the result, I expect they will come in on or near to US$14.4m, with a slightly favourable $A result, based on strong US$ last 2024. (Of if they are close but below, they might focus on the $A number and use the excuse of a strong US dollar!)

Again, given the transition from hardware to software that you've mentioned, we should largely ignore revenue and focus on 1) GM and 2) expense control. We know expenses are going to create significant strong negative operating leverage because they've said:

"Cost growth is expected to be in the range of 7%-9% in FY25 (compared to historical annual cost growth of 28.5% over the last 3 years). This remains consistent with previous guidance and reflects our confidence in Audinate’s long term growth prospects. We continue to focus on carefully balancing our cost structure with strategic investments in new product development to drive sustained future growth."

I'l come back to this at the bottom of this post.

2. Industry Performance (See graph below)

Again, as you've highlighted via the AXIA Pro AV Business Survey, growth has continued to decline through the second half of CY 2024. However, from my perspective, the important thing is that the industry has maintained growth - if the index is to be believed. Some OEMs have reported declines and others growth, but overall it looks like the industry has continued to grow, albeit at a slower rate than historically (ignoring the aberration of 2020).

Add to albeit subdued growth and $AD8's ongoing design wins, the key I will be looking for is what they are saying about 2H FY25.

In my modelling of the bullwhip effect, published last year, I see 1H FY25 as the low point in this cycle, a modest recovery in 2H FY25, but then a very strong recovery in 1H FY26. But that's just a model, and its probably completely wrong.

What Am I Looking For?

I am still holding back a one-third allocation back in to $AD8. I'm hoping for

• GM to come in at US$14-15m
• a market over-reaction based on hossirble revenue and earnings pcp comparisons
• a statement of stability or modest recovery for 2H FY25.

The only thing I have to think about over the weekend, is that the trend for the Pro AV OEMs is a negative trend that could put the sector into contraction in 1H. That wouldn't be great.

There are probably too many moving parts here, and so I am like just to sit on my RL 2.8% position.

Disc: Held in RL and SM

Figure: AXIA Pro AV Index (Source: https://www.avixa.org/market-intelligence/pro-av-business-index)