(cross post from YAHOO!) This should have been Avid's best quarter. The 2Q post-NAB (National Association of Broadcasters) convention quarter is historically Avid's best quarter. This is when all the orders kick in from the pros who wait until NAB to make their equipment purchase decisions. To anyone in the business, this slide from last year's volume is seen as a big disappointment, proving that Avid's growth is stalling at best, declining at worst. I don't know how the street will react, since the profit/share increase looks good on the surface.
However, (I know I'll take some heat again) where is the revenue growth that befits a company which recently boasted a P/E of 46? I warned back then that Avid was overvalued and I warned again even more recently that I suspected a disappointing 2nd quarter was adding to its slide. Avid hasn't been growing anywhere near the rate it was growing at when it was the only game in town and NLE was the new rage. Everyone had to have it, and most of us bought Avids. NLE is a much more mature market now, and I continue to assert that it is a limited, niche market (you can review my prior posts for my argument in detail if you like). The fact that Avid is raising margins in a market where the price of computer hardware continues to plummet while performance rises dramatically, is not a model that will generate huge increases in market share or revenue going forward, IMO. Avid has the best NLE workstations for pros that are able to spend about $25K to $75K. But that is a limited, mid- to high-end market within a larger, but still limited market of professional post production. Meanwhile, the entry-level and mid-level competition only gets cheaper, better and closer to Avid in feature sets.
I'll say it again. Avid is a great company with great products. That does not mean it is a great investment at this time. Avid is not going to $60, much less $46 again with this revenue history. You can only go so far on operational improvements which boost the profitability of a company. And won't their SoftImage acquisition begin to impact earnings for the next few quarters? Investors pay for both topline growth and bottom line profitability. The smart ones started getting out months ago when they saw what was coming. Believe it or not, I'm not short, just an experienced Avid roller-coaster rider who got off for good last year. Be careful, and good luck to all.
As always, do your own research!
D. Kuspa |
