AD8 is more of a B2B company @PhilO so they are selling to the AV equipment manufacturers mostly, so that they can include Dante and AD8's other offerings in their (the OEM's) hardware, similarly to the way Bluetooth became a must-have feature of so much in the audio space. Except Bluetooth was free and developed by an organisation funded by the main audio manufacturers, whereas Dante is owned by a publicly traded company, Audinate. So, yes, it's an enabler, but if you manufacture the gear, you'll likely want Dante capability built into your gear if that's what most people who use the gear are wanting.

I was an AD8 shareholder and a big believer in the story until I realised they were going for the three prong approach of Audio, Video and Control. I think they had bugger-all serious competition in Audio, but I am not nearly so confident with those other two legs of their business tripod. So that's why I remain on the sidelines with Audinate today. I thought they were a slam-dunk investment opportunity in Audio, but the waters are much muddier now and I don't have a feel for how long it's now going to take for them to become consistently profitable (that inflection point) and how much money they will need to spend to get there, now that the scope of the business has changed from what I had previously thought it was (ie. just audio).

But yeah, they're an enabler, but their core TAM is not the likes of you and me, it's original equipment manufacturers (OEMs).

My thoughts below are not a deep dive investment thesis, more a summary of heuristics that are telling me to buy Audinate at $185 market cap. It screens well as an unloved, high quality turnaround to me. I'm keen to hear the opposite view!

1. Unloved. The first intangible buy signal might be no one has commented on strawman for 7 months, although the company has been pretty quiet of late too. It's halved in price since anyone commented and I didn't think the half year was too bad. Conclusion, unloved. Chance for the patient investor to buy from jaded bag holders and ahead of those demanding certainty that the turnaround is on track.

2. Upside potential. A market cap of $185m ($2.15 per share) means you're paying about 3x gross profit (expecting about $60m this year). If gross profit was ARR (and at 80+% gross margin its not an unreasonable comparison) people might say 3x is pretty cheap. I think audinate has a fair chance to leverage those high margins and grow into profitability (in Dante, but also video and platform if it works). Ie. Upside potential

3. Asymmetry. $70m of cash helps protect the downside. My feeling is it buys 2 years of further responsible growth investment, time enough for the base business to be profitable and takeover as the source of growth funding. If there's no traction in video and platform by that point, then they've lost their growth mandate. I think cutting their losses and transforming back into a focussed Dante business (dominate its niche) could underwrite a market cap higher than today's. Ie. Downside protection albeit with management ego risk.

I've been tentatively buying a few more IRL at these levels, tempted to keep going........

@Longpar5 , this was a good prompt, thanks!

I exited AD8, losing actual $, not much, but the loss stung vs peak paper profits. So it was a bit of a shocker to see the share price in the 2's.

I also spoke, recently, to the AV dude in my daghters school while he was packing up the gear. He was all over Dante, said they were the standard, easy to use, he has it in his home setup and is trying to convince the school to add more Dante - bouncing off walls really. But he said that the video was still "way too expensive" and left it as that. No excitement, no "I want that as well" excitement/anticipation. Which essentially sums up the AD8 story from a practitioner's perspective - strong on AV, video is still in infancy mode, with success far from certain.

I looked back at my EOS notes from 2022 and it was a bit of a shocker now, that I wrote my "why remain invested" thesis on EOS as it was trading at 89.5c then. But what was clear was that a Turnaround was absolutely happening - new management, new strategy, new approach, new discipline. And I could articulate it, point to the slides etc.

I then had a look at the AD8 Half Year preso last night. It was the same familiar AD8 pack, the themes, the strategies, the growing design wins etc. I could not pickup anything that suggested that anything had changed. It felt like more of the same, a doubling down almost. And I could not work out any reason to poke further.

Totally hear you on the limited downside, valuations etc - from a defence perspective, makes very good sense. But I don't like to deploy capital with defence in mind. I need to define an offensive "why invest" rationale and point to the evidence. Just not finding it with AD8.

Would really like to understand your rationale, as the Dante monopoly is something that I am fundamentally attracted to. I just can't find evidence to buy in simply on that basis.

Good challenge @jcmleng, my upside story was limited to "a fair chance to leverage those high margins and grow into profitability (in Dante, but also video and platform if it works)"....not exactly compelling!

In a setup like this, where I feel the market is pessimistic and as such my downside is relatively well covered, I'd still like to think the stock could double in 5 years, without any heroic assumptions. So what would that look like for audinate now.....

Working backwards, it would need to get to $360m market cap, if I assume a PE of 20x, not unreasonable for a business with this kind of moat, it would need an NPAT of $18m. So what does it take to get there....

Gross profit for fy26 is forecast at $58m, assuming they hit the low end of their 13% growth target this year. Say they grow gross profit at 12% compound for 5 yrs that will bring gross margin to $100m. That's good steady growth, but with an ever increasing dante ecosystem it's not outrageous. They hit $68m back in 2024. This doesn't require a big win in video, I think it's achievable with Dante and software alone. So assume video sucks on the cash balance to the tune of $20m pa for a couple more years, then they kill it off without needing any dilution. So video becomes free, funded, upside.

I'll assume fixed costs stay under control. They're about 60m base + 15m development now, say they're at the same level in 5 years, which wouldn't be unreasonable if assuming video is out of the picture.

So 100m gross margin, minus 75m all in costs gives 25m EBIT, tax at 30% and we're at 17.5m. Apply PE of 20 to the simple, growing profitable business and we've hit the magic $360m (well 350, but close enough for me).

I think that 12% growth assumption is not without challenges, AV market would likely suffer through any economic downturn and if China invades Taiwan I can imagine OEMs having all sorts of trouble putting products together. But every opportunity has its furry bits.

It's all very mechanical framing work from me. I've no great insight as to the prospects of Dante or the video solution, I think research into this is where you could gain real conviction to take a bigger stake. Actually I think this is one of my biggest problems in investing....I dont really get to the deep research to gain real conviction and confidence to take that big position.