Key take always from the AD8 AGM for me (apart from TAM expansion per separate straw) were:
There are 2 main strategies
1) “Winning in video”, this will include M&A ($1.2bn Rev Video Mkt), this is their #1 priority.
2) “Building out the operating system of AV” ($1.4bn Rev Software & Services Mkt), this is the big Long Term prize.
So they have a long runway of reinvestment opportunities at (a high expected ROI).
Technically there's a 3rd strategy which is to dominate Audio, but I'd say this is just a matter of time and the focus of CEO Aidan's discussion is all around video. Software & Service (operating system for AV flows from that).
Execution on the Video strategy is everything, and I would say if they don't manage this, the thesis that supports the current share price is badly damaged.
If they can do in Video what they have done in Audio to dominate the Video market, S&S should be easier as they will be the de facto AV operating system and be able to build a product suite earning high margin SaaS Revenue on top of this.
The recent $70m Cap raise was to expedite their Video investment via M&A and in-house Dev (Capex), so aligned to this Video focus.
Expecting minimal growth in Opex so should start to see Operating Leverage in evidence in the next few years.
This Video strategy is de-risked in a few ways.
1) They are following the same playbook as they did in audio where they have now effectively won. Their Dante protocol has 9% of the available market (but 12x the penetration of their nearest competitor). Trajectory is also positive, as this was 6x a few years ago and will soon be > 12x as more design wins translate into OEM (product) deployments.
2) They have a very good name and relationships in the AV industry from their work in Audio. There are a lot of synergies for AV Engineers and OEM’s to have a single integrated protocol across Audio and Video combined – as they have won in Audio they can be the only integrated protocol across both.
3) The Video market is more fragmented than Audio with no clear competitor and the incumbent is inertia (See separate straw on NDI).
4) They have integrated 2 small acquisitions that have allowed them a rapid entry into the market increasing their products from 7 to 48 in FY23. It took more like 6 or 7 years to grow this part of the Audio build out.
Note: The above is not what they spelled out specifically in their presentation (not sure why - building a monopoly concerns, don't want to spook the competitors?), it's just me pulling a few things together from the AGM preso, FY23 results and ASX material and what Aidan's been saying for a while. So I could be off the mark here and reading into what I want to believe...
Disc: Held (largest position)