@mikebrisy , Gaurav lost me completely when he compared AD8 to a casino in his writeup. Either he doesnt get AD8 (completely strengthened by your comments here) or does not understand how a casino works, or both, none of which inspires any confidence ...

I'm absolutely keeping my Strawman subs and ditching Intelligent Investor when my current free trial expires in 10 days time ...!

Held IRL and in SM

@mikebrisy I heard the episode this morning, and I too was surprised how Gaurav described it as demand pulled forward by Covid and not a supply chain issue. Gaurav has followed this name for many years, so I was somewhat surprised by the analysis.

He also spoke about the switch of performance hurdles from revenue to gross profit as a bit smelly. Again I don’t agree.

Audinate enables devices to be able to use Dante. It's Dante units they care most about and how much they make from each unit. But there's a transition - the world is changing and it's becoming more and more economical/functional for OEMs to enable it with software, rather than buying the dedicated Dante chips. So there's a transition from hardware to software units. I think it makes a lot of sense to move to being incentivised from revenue to gross profit - that's the number they should be optimising for.

The software and hardware part of the business is not seperate - it's one of the same. The only part of software is different is PC/Mac software, Dante Domain Manager, and the new SaaS thing - but they're a very small percentage of "software".

If one inverts the situation - what if management left incentive hurdles to remain as revenue. I feel like that would incentivise management to hold onto selling hardware chips and resist the transition as well as continue to sell low margin viper boards - which is a non core manufacturing job. This would be exactly the wrong thing I’d want them to do.

Yeah Mike i just listened to it, i was surprised GS is out of AD8 after being a huge cheerleader. like you i was also surprised by the analysis, i suppose AD8 is still pricing in winning, so it's no open misere. maybe the playbook has moved from simple to overly complicated for him.

@mushroompanda agree your point about incentives. Incentives should align with shareholder value, and GM aligns better than revenue, particularly now with importance of software.

(Maybe Gaurav got out of the wrong side of bed. We all have off days. But also maybe we are seeing the human tendency that all your confirmation biases switch once you’ve sold a stock!)

@mikebrisy I read the transcript from the podcast yesterday afternoon and from memory Gaurav said he sold out of AD8 for a better idea so maybe it was a case of limited funds and switching to what he considers a stock likely to outperform AD8?? I think he bought APE.

Perhaps he had a better opportunity and the opportunity cost of relinquishing AD8 was outweighed by what ever the other opportunity was. Of course, he then has to justify this ( we all have bias) and perhaps he's not willing to tell the full story as in the early days after a decision we might not al be self confident enough to hang it all out there. And if you have a public position to support ...

I'm going back my beer watching the Melbourne derby and will leave the psycho analysis to others who might be properly qualified :)

Gaurav lost me when he said "The Dante protocol is installed in audio visual gear and it allows AV gear to talk to one another without the use of cables". I'm pretty sure this is factually inaccurate as Dante specifically uses ethernet cables to transmit AV signals. Basically turning analog signals digital.

It appears you are right at this point in time @BoredSaint - see here: https://www.getdante.com/support/faq/networks-and-switches/

That site, "getdante.com", is one of AD8's official websites, so the info can be relied upon.

Excerpt:

Can Dante operate over a Wi-Fi network?

No. While possible in principle, the practical limitations of current wireless technology (802.11a/b/g/n) render reliable performance unachievable. For this reason Dante software such as Virtual Soundcard will not recognize wireless connections for audio data.

Does Dante require any special network infrastructure?

No, special network infrastructure is not required. Since Dante is based upon universally accepted networking standards, Dante-enabled devices can be connected using inexpensive off-the-shelf Ethernet switches and cabling.

--- end of excerpt ---

I think that what you've highlighted there @BoredSaint is a common misconception about Dante, that once audio is fully digital it can be transferred wirelessly, and of course it can - but not as reliably as via ethernet cables, so Dante currently do not try to use the tech wirelessly, and it's a misconception that I also shared, along with Gaurav; I believe I may have even discussed that wireless networking opportunity as being one of the big advantages of Dante in prior years here, and I was clearly wrong about that.

One day wireless will no doubt work just as well as hard wired connections, but we aren't there yet.

So, again, perhaps AD8 just isn't a company that Gaurav is all over to the same extent as some of his high conviction picks.

Disc: I'm back onboard with AD8 now (since the day of their recent H1 report and the market reaction), and I have always valued Gaurav Sodhi's analysis on companies that he knows well. I just think, with the benefit of hindsight, that he just does not know Audinate as well as he probably should, considering he's held them in the past and had them as a "Buy" previously.

I guess it depends on the definition of "wireless". Dante will work on wireless microphones and speakers etc as these are still connected to the local network through a "wired" ethernet cable from the transmitter which is Dante powered. Thus reducing the amount of analog cables needed to set up a concert stage for example. But this does all cannot be connected together via a "WIFI" network. I presume due to reliability as well as speed of transferring information, there would be enough lag to affect performance.

@Bear77 @BoredSaint correct. The whole value prop of DANTE is that rather than having to connect the audio network using dedicated AV cables per channel, you connect devices to a standard Ethernet cable network ( I.e. Cat-5, Cat-6, fibre) and use IP protocols to manage digital signals.

The unique advantage of the technology is its ability to do this with low latency, so that high fidelity is maintained, and that’s where the barrier to wireless arises, as I understand it.

@Goldfish I can't argue with any of that.

As much as we don't enjoy the share price fluctuations of some of our larger positions, sometimes we are presented with a bargain and who doesn't like a bargain?

The trick is to know what is a bargain and what is good money after bad, and I've thrown away my share of good money after bad...

My Audinate journey sounds similar to yours. I trimmed some above $20 and bought more between $7 & $10 but it always could have been more!

Hindsight is a beautiful thing!

Welcome aboard!

Held on SM and IRL

whoa -- 23% up so far!

Looking more and more like the hiccup they experienced really was just an inventory issue resulting from something of a bullwhip effect. That combined with a very "robust" valuation prior to these issues surfacing.

This is still the dominant disruptor in a large, growing industry. It's well capitalized, operating cash flow positive and *should* return to growth in the near future once customers work through their backlogs.

Worth noting that, if you assume a return to FY24 sales levels next year, and even if you apply a 20% net margin (they wont get that anytime soon as they pursue growth, but just to get a sense of what it may look like on some kind of 'normalised' basis), then they are still on a PE of ~43x.

I really like this company, but the valuation still holds me back a bit.

@Slomo and @Solvetheriddle I agree with both your comments.

@Solvetheriddle I think the issue with video is that the market is much more fragmented with different protocols. It does mean that $AD8 will not enjoy the dominance in this market that they do in audio, and so progress will be relatively slower. Will they ever achieve the same dominance in video/AV as they do in audio? I'm not sure, and my thesis doesn't rely on it.

I'll not repeat your remarks (in part as I have to get my head straight for $SPZ call in 30 minutes)

Another big positive to me from the presentation is that, with the transition to software, that is creating opportunites for $AD8 to build more functionality into their products. The security offering going in to Dante Director is one such tangible example. I think we will see more of this over time, as they figure out the features that are natural for $AD8 to offer customers.

The Bullwhip Clarified

I think 1H FY25 is the bottom, given the positive progress of Q2 over Q1, leading to the beat on guidance. The key information is that of their top 10 chip, card and module (CCM) customers, 6 have resumed re-ordering, with 4 yet to recommence.

Following the brillliant analysis by @mushroompanda 6 months ago, it is clear that $AD8 is suffering a bullwhip effect, wherein following chip supply chain constraints in 2022/23, customers "over-ordered" in 2024. Essentially, in practice, this probably meant that customers went from a 6-month replenishment cycle to a 12-month replenishment, essentially increasing safety stock by 6 months.

While we don't know the absolute magnitude of the policy changes (and they will vary by customer), we can estimate the magnitude from the "excess revenue" observable in 2H23, 1H24 and 2H24, which is when the excess buying occurred.

It is hard to know the bullwhip period, but I am confident that it is between 6 and 12 months. Therefore, this morning as soon as I saw that Q2 had improved over Q1, that was signal enough to me that we are looking a more like a 6-month period than a 12-month period. So, I put in my final order for $AD8 at the open. (I'm not buying more on SM as the price has taken off, but it is still probably at a reasonable re-entry point.)

As a result, I expect the improvement to accelerate during 2H and the remaining unknown for me is the steepness of the recovery. If the recovery is completed in 2H, then the 2H outperformance could be very significant indeed, leading to a very strong 1H FY26 - both on an absolute and certainly on a comparative basis. With only 4/10 major customers yet to replenish, it looks like the overhang will be fully worked through in a few months.

So, that's why I decided that the opening of trading this morning was the time to move.

What are the uncertainties in the analysis?

There are two key uncertainties:

• How much of the CCM revenue will get cannibalised by software and how much of that are we seeing?
• Overall the Global Pro AV segment slowed down through 1H FY25 - will the slowdown continue into 1H FY25 (US tariffs might not help)?

On balance I considered both of those two factors were secord order effects.

Next To Do

Revisit the valulation of $AD8. The bull whip has been value destroying as it nearly always is, but now what is the view point forward?

Disc: Held in RL and SM

Courtesy of The Australian.

Audinate rockets 27pc-plus

Shares in digital audio company Audinate rocket 27 per cent-plus in early trade on Monday after first-half results beat market guidance.

Gross profit of $US16m was down 29 per cent on the $US22m booked in the prior corresponding period, but margins improved to 82 per cent, up from 72 per cent margins logged in the first half of financial year 2024.

Audinate reiterated it was overstocked with its physical supply of chips, cards, and modules (CCM), resulting in a 55 per cent dip in revenue from those products. But, a 13 per cent rise in software revenue suggests underlying growth is strong, said the company.

Audinate CEO and co-founder Aidan Williams said: “Although the first half was impacted by excess inventory in the OEM channel, we remain confident in the fundamental strength of our business model. We continue to invest in our market-leading audio business, expanding our installed product base and manufacturer partnerships. Additionally, we are investing in long-term growth opportunities through our video and platform software businesses, positioning the company for success as market conditions improve.”

UBS analysts retained a neutral rating on the stock and a 12-month price target of $10.60, but said to “expect positive reaction” to Monday’s results.

AD8 last at $9.65, up 27.2 per cent.

But maybe with such a dominant position in audio that multiple is reasonable ?

Shares up 32% so market has answered

Too bad my money still parked in HIMS

I don't have a whole lot of add at the moment. @mikebrisy has done some wonderful analysis on the bullwhip effect, as has @Wini on his latest comments about AD8 on Ausbiz The Call.

I still believe the profit downgrades that hit the share price hard are almost entirely a supply chain and bullwhip effect story - unrelated to underlying demand or performance of the company.

The strongest evidence for this is in the unit shipment numbers. Software units, which are purchased on demand with no inventory buildup, continue to show strong growth. Meanwhile, hardware chips (CCM), despite being at a “cyclical low,” remain slightly above pre-COVID levels. Underlying demand has not dropped at all - it's just a pull forward and back of physical inventories.

@Strawman they have such a strong monopolistic position in audio that if Audinate were to stuff it up from here they would redefine what doing a Steven Bradbury means! This deserves a high multiple in my opinion but the question is how much?

I really liked this from yesterdays announcement:

"Audinate’s gross margin percentage in 1H25 increased to 82.2%, from 71.5% in 1H24, driven by a favourable product mix shift toward software-based solutions."

Audinate is transitioning to a pure software company and the earnings quality will improve with this.

Well played to all who have been buying AD8 below $9/share recently. I was absolutely wrong about it taking two reports for the market to get positive around AD8's growth being back on track - one report (today's report) appears to have done the trick.

The commentary I've crossed out (in red) there is automatically generated by Commsec and does not take today's move into account clearly.

Today's move up to just under $10/share is certainly VERY positive, and I bought AD8 back into my SMSF this afternoon just before I started this post. I could have got them cheaper in recent months clearly, and my decision to sell out of AD8 back in October has not worked out too great for me as I've now bought them back at a higher price than where I sold out, so I didn't end up saving any money by avoiding the further share price downtrend since I sold. I cost myself money instead. What I clearly got wrong was (a) how the market reacted to this report, i.e. how soon the re-rate came, and (b) the magnitute of the re-rate. I'm not unhappy because I think my process was sound based on my own past experience with companies that fall out of favour with the market and what it usually takes for the market to get positive on them again, but the process (based on my own experience) just didn't work for me this time.

Still, for perspective, at just under $10/share, Audinate is now trading where they were in mid-October, and less than half of where they were trading at last March, so while I do note comments that some community members here still regard AD8 as expensive based on their reported numbers, I think it's likely to be all about momentum and buying for future growth again, and I reckon this report has done the trick in terms of convincing the market that the overstocking issues are going to be behind Audinate this calendar year and that the future growth is back on track.

Disc: Held (again, as from this arvo).

I can relate to this. I did buy at lower prices during this downdraft, but not nearly enough. I thought a lot about adding another parcel around $7, but didn't end up doing so, for which I can only blame myself.

I didn't sell any of my holding though, and now am firmly back in the black after today's move.

Buy at 52 week low 

I have just bought at $6.29 to bring AD8 up from a half to full position, having previously bought some at $8.56 in August last year. My thesis remains as it has since my first buy in March 2020 which is it is the dominate player in it’s market and offers monopoly opportunities (in very short).

I am also buying because of value, which was why I sold out my original position in early 2023 only to see it double after that – so the market and I do not seem to be at all aligned on value.

I am also very on board with @mikebrisy view that we are at operational low performance levels currently and that we will see a pick up in 6-12 months. At which time the market will probably kiss and make up price wise and the talking heads will be out in force lauding the virtues of the companies market position.

The H1 result of 4 weeks ago was well covered by the SM community, but I thought $10 was hit way too early and comfortable sitting and waiting, in no small part because I agreed with @mikebrisy that green shoots where a little off, and the price was likely to slide waiting. Also the value proposition needed a fair degree of safety margin and I already held some so it was a case of waiting to see if a really good opportunity presented it’s self.

Today I have taken that (good?) opportunity – the future will tell me if it was a good one.

Completely agree

If I didn't already own so much, I would be buying more

Very volatile share price. I think people get too caught up in the short term. And of course the validation changes dramatically depending on assumptions about future growth

@Tom73 momentum is solidly against $AD8 at the moment.

Macquarie have apparently just cut their price target from $8.70 to $6.30, according to a report by Carl Capolingua in MarketIndex/BrokerWatch, so that probably doesn't help!

As @Valueinvestor0909 posted a few days ago, the tariff war is also not helping, given that many systems are made in China, and as a category, Pro AV relies on complex international supply chains and not a lot is made in America.

My own view, is that part of what we are seeing is analysts following the SP down, and fitting a story to that, although I have to be careful because I haven't actually read many of their most recent reports!

I have also been topping up my $AD8 position (in RL and SM) over recent days, as the market has clearly lost the initial enthusiasm shown when management indicated that they'd hit the bottom, and were seeing a return to customers buying.

The combination of the supply overhang real underperformance, the overall macro-market correction, and the tariff clouds are all adding up to a big hit to $AD8. But my thesis hasn't changed and so this is precisely the time to be buying on both an absolute and relative valuation basis. (The fact that everything looks so bad, gives me confidence that it is probably the right time to be buying!)

(I probably ought to have a go at updating my $AD8 valuation on here at some point!

Agreed, and I have also been adding - both here and in my SMSF. FWIW, FNArena - as of today (18th March 2025) - lists the broker calls on AD8 as follows:

Source: https://fnarena.com/index.php/analysis-data/consensus-forecasts/stock-analysis/?code=ad8

They do have the Macquarie downgrade listed there @ the top (on 13th March), from Neutral to Underperform and down to a $6.30 TP.

I note the other target prices range from $9.50 to $11.00, so Macquarie is certainly far more bearish on AD8 than the other 5 brokers at this point in time.

Here's FNArena's summary of the latest Macquarie, UBS, MS, and Shaw & Partners Broker Reports.

Source: https://fnarena.com/index.php/analysis-data/consensus-forecasts/stockbroker-research/?code=AD8

Note that they're in reverse chronological order, so the latest updates are at the top and the least recent ones are at the bottom. Also, the "Gain to target" percentages are calculated based on the AD8 share price on the date of the report release, so are not based on the current AD8 share price.

And also FWIW, here's FNArena's graphic representation of some of AD8's key metrics:

Source: https://fnarena.com/index.php/analysis-data/consensus-forecasts/stock-analysis/?code=ad8

The following is Commsec's scan of broker coverage of AD8, however the "As of" / "Most recently changed on" date (20th August last year) looks a bit suss. The data is either out of date or else they've not updated those "last updated on" dates.

Source: https://www2.commsec.com.au/quotes/recommendations#/recommendations/consensus

Also, FWIW, here's the latest Morningstar™ Quantitative Report on Audinate: Audinate-Group-Quantitative-Report-08March2025.PDF [Fair Value $16.03]

And below is a sample of the data that Market Screener provides today for AD8:

Source: https://www.marketscreener.com/quote/stock/AUDINATE-GROUP-LIMITED-35868275/consensus/

Here's a report they allowed me to generate this arvo for Audinate (warning: it's fairly useless, and there is a lot of data missing - blank): AUDINATE-GROUP-LIMITED-03-18-2025.pdf

I have not included this stuff to suggest anything about the current or future value of Audinate, just what the brokers and their analysts are saying and their latest calls on the company. Sometimes this can add to our understanding of what may be driving the share price up or down, as @mikebrisy said today in relation to Macquarie downgrading AD8 recently and lowering their target price to $6.30. And AD8 have now dropped to just below that level, closing at $6.22 today.

That doesn't necessarily mean the selling is over; we still have momentum traders and trend followers in the market who trade shares with little regard for intrinsic values, and we have shorters as well, and it looks like the shorts have started building again after that big short squeeze that we saw last month when Audinate reported.

Source: https://www.shortman.com.au/stock?q=ad8

Above is the one year view on the shorting activity in AD8 (with that usual 4 day lag); Below is the shorting activity in AD8 over three years:

Source: https://www.shortman.com.au/stock?q=ad8

Hopefully those shorts build back up to over 8% again and we can then get another short squeeze when AD8 report in August.

Disc: Holding.

I am also tempted to add for fundamental reasons, but the technical picture is absolutely dire...that picture will likely start improving before the fundamentals reflect the improvement, so that's what savvy punters should be on the watch for. It's hard to pin down a valuation for a company at this stage of its evolution because it is only just inflecting into profitability, with volatility around that inflection point as seen in the past year.

It's been a volatile ride, all the way from over a 3x gain to a mild loss now on my cost base, all in a couple of years!

Thanks for sharing that data @Bear77 , probably the most interesting chart was the one in the Market Screener showing broker price moves. It confirms how the brokers follow the price just like @mikebrisy pointed out.

The simple truth on broker price targets is that if you follow them to invest you loose money - you don't just do worse than the market, you loose money! You will always be following price moves never ahead of them (buying after they go up and selling after they go down).

Every time I hear talking heads use broker targets (yes Rudy @ FM Arean am talking about you especially) as a reference point that has any place in the assessment of the value of a stock I just shake my head and move on.

Regarding AD8, I agree momentum may carry the price lower, but I don't expect it to be much further and we all know what happens to people who try and pick the bottom...

Hi Tom73 Noted your comment in relation brokers generally and Rudi at FNArena in particular.  Rudi has made a business out of obtaining and re-packaging broker and other stock related information.   Good for Rudi. 

Rudi himself is a journalist and so are his staff. So if you just like stories, and are not too concerned with losing money then subscribe to FNArena.  

@Tom73 i think i have been saying that for years on this site, and decades beforehand to anyone interested. over the decades I read broker research I trained myself to not look at or note the PT or recommendations. any interesting opinions = possibly of note, any unknown facts definitely of note. a for AD8 i think thye need to show they can generate FCF, especially in a poor market where "gonna" stocks get marked hard. the bullwhip needs to be put to bed.

@Scoonie harsh but fair, had a good laugh over those comments