Cybersecurity And Saturation Will Strain Margins Yet Spur Adaptation

Key Takeaways

• Dependence on a small group of OEM partners and rising open-source competition threaten revenue stability and Audinate's product differentiation.
  
• Growing cybersecurity and compliance risks, along with industry consolidation, exert pressure on margins and limit long-term earnings growth.
  
• Ongoing shift to higher-margin software and cloud solutions, strong industry adoption, and broadening AV market trends position Audinate for sustained long-term growth and improved profitability.

Catalysts

Engages in develops and sells digital audio visual (AV) networking solutions Australia and internationally.

• Audinate's exposure to escalating cybersecurity threats in professional AV and cloud environments is growing as it expands its cloud-based SaaS offerings like Dante Director, increasing both compliance costs and operational risk-any significant breach or increased regulatory requirements could erode net margins and damage revenue trajectories.
  
• The intensifying consolidation among global technology firms and cloud service giants threatens to marginalize niche AV networking providers such as Audinate, creating downward pricing pressure and diminishing the company's long-term bargaining power, which risks gross margin contraction and could limit earnings growth.
  
• The risk of market saturation is rising in Audinate's core professional AV networking segment, as key customers work down excess inventory and hardware transitions toward embedded software plateau, potentially limiting recurring revenue expansion as the company exhausts the most accessible avenues of penetration.
  
• Persistent reliance on a limited number of OEM partners makes Audinate vulnerable to revenue volatility if any major client is lost or chooses alternative or in-house solutions-this concentration risk could destabilize top-line revenue and increase earnings unpredictability.
  
• The emergence and broadening adoption of open-source and software-based AV networking protocols threaten to commoditize the AV networking space, eroding Audinate's product differentiation and pricing power, and raising the possibility of a sustained decline in both licensing revenue and overall profitability.

Audinate Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Audinate Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Audinate Group's revenue will grow by 16.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.5% today to 10.7% in 3 years time.
• The bearish analysts expect earnings to reach A$12.4 million (and earnings per share of A$0.14) by about July 2028, up from A$3.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 53.2x on those 2028 earnings, down from 166.3x today. This future PE is greater than the current PE for the AU Electronic industry at 28.7x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

Audinate Group Future Earnings Per Share Growth

Risks

• Persistent and growing demand for digital AV networking, as highlighted by the increasing number of Dante-enabled products (up 196 to 4,372), strong design win growth (up 15%), and robust OEM engagement, indicate a long runway for future revenue growth and recurring licensing streams.
  
• The strategic shift to software and cloud-based solutions-such as embedded software, Dante Director (SaaS), and Dante Domain Manager-are delivering higher gross margins (up from 71.5% to 82.2%), and are less vulnerable to inventory cycles, underpinning margin expansion and improved earnings quality.
  
• The company is experiencing strong early-stage adoption and positive industry response to newly launched products and features, including accelerating traction in Dante Video (76% growth in OEM video products launched) and innovation in monitoring/security tools, which broadens the addressable market and opens new high-margin software revenue streams.
  
• Audinate's financial position is robust, with $111 million in cash and no debt, enabling sustained R&D, product development, and value-accretive M&A, supporting long-term growth in sales, net margins, and the ability to capture future industry tailwinds.
  
• Secular trends-such as global digitization of infrastructure, increasing demand for professional AV in hybrid work, live events, education, and a broadening ecosystem of manufacturer partners-continue to structurally raise demand for interoperable AV network solutions, positioning Audinate for multiyear revenue and earnings growth beyond short-term hardware headwinds.

Valuation

• The assumed bearish price target for Audinate Group is A$6.3, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Audinate Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$19.0, and the most bearish reporting a price target of just A$6.3.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$115.6 million, earnings will come to A$12.4 million, and it would be trading on a PE ratio of 53.2x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of A$6.55, the bearish analyst price target of A$6.3 is 4.0% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.