3 Audio Video Stocks to Watch in a Challenged Industry

The pandemic continues to affect companies in the Zacks Audio Video Production industry. Declining consumer demand and supply chain disruptions are major concerns. Also, 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 remain headwinds. The companies are concentrating on the premium segment of the branded products market for business growth Sony Corporation SONY, Sonos SONO and LiveOne LVO are likely to benefit from investments in cutting-edge technology solutions that create better communications experience.

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 a host of services for theatrical and television production for cinema exhibition, 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

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.

Changing Consumer Preferences: Rapid changes due to the technological obsolescence of products lead to many challenges as the ecosystem transforms in the digital age. The fast-evolving industry has called for innovation, which necessitates the participants to develop ground-breaking technology to stay ahead of the curve. Keeping up with changing consumer preferences, licensee demand and shifting standards make the industry vulnerable to operating risks. While the companies are coming up with attractive offerings to broaden their customer base, they face risks associated with new product development.

Lingering Supply Chain Troubles Continues to Hurt Businesses: The pandemic continues to affect the industry, with companies impacted by lingering supply chain issues and subsequent increase in component costs. While the companies keep investing for market share gains and supply chain resilience, a shortage of critical hardware components due to supply chain disruptions 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 Gloomy Prospects

The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #217, which places it at the bottom 13% of more than 251 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak 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 Outperforms Sector, Lags S&P 500

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 41.2% over this period against the S&P 500’s decline of 16.9%. The broader sector has declined 43.1%.

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 0.80X compared with the S&P 500’s 3.46X. It is also below the sector’s trailing 12-month P/S of 1.68X.

In the past five years, the industry has traded as high as 1.43X and as low as 0.63X with a median of 0.87X, 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 is active in producing, acquiring and distributing motion pictures and television programming and operating television and digital networks. Further, the company has a global presence in the music and image-based software markets.

Sony’s performance is gaining from continued strength in the Music and Pictures’ segments. The company is focused on the premium segment of the branded products market to maximize growth. For fiscal 2022, the company now expects sales to improve 16%, owing to higher Music, Pictures and Entertainment, Technology & Services’ segment sales. The Zacks Consensus Estimate for its current-year earnings is pegged at $5.09 per share.

At present, Sony carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Price and Consensus: SONY

Sonos: Headquartered in Santa Barbara, CA, Sonos is one of the world’s leading sound experience brands. The company is focused on its three strategic initiatives — expanding its brand, boosting its offerings and driving operational excellence. It benefits from robust product demand in the growing global audio market.

Sonos’ performance is gaining from robust demand for the company’s speakers owing to the launch of Ray and strength in Arc and One. Expanding direct-to-consumer initiatives, brand image and extended partner ecosystem support its growth strategy.

At present, SONO carries a Zacks Rank #3. The consensus estimate for its current-year earnings is pegged at 56 cents per share.

Price and Consensus: SONO

LivOne: Headquartered in Beverly Hills, CA, LiveOne provides a platform for livestream and on-demand audio, video and podcast/vodcast content in music, comedy and pop culture and the owner of LiveXLive, Slacker Radio, PodcastOne, and React Presents among others.

The company’s performance is driven by the robust LiveOne audio business, including Slacker Radio and PodcastOne. The audio business is witnessing growth in paid members through partnerships, advertising and sponsorships. The company recently revised its audio business revenue guidance to $88 million, representing an 18% increase year over year. Earlier, the company had guided revenue to be more than $80 million. Synergies from acquisitions and cost containment efforts bode well.

At present, LVO carries a Zacks Rank #3. The consensus estimate for its current-year earnings is pegged at a loss of 3 cents per share.

Price and Consensus: LVO

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