Well, it is no secret that FY25 has been declared a transition year for Audio and video networking company Audinate (ASX: AD8). Yesterday, Audinate published its financial year results, confirming significant declines in key financial metrics, such as:
- Revenue: $62.07m (FY24: $91.5m)
- Gross Profit: $51.1m (FY24: $68m)
- Reported EBITDA: $0.26m (FY24: $20.26m)
Now, as bad as it seems, the above result was expected, and the market was well informed about it prior to these results, so I don’t think these numbers drove the share price decline from around $6 prior to the results to about $5.20 at the time of publication.
If I had to guess the result before publication, it would have been something in the vicinity of what was announced. So these numbers don’t really change my opinion of Audinate shares.
What really stood out to me this time were the comments around FY26 guidance and the level of investment required in the video and control segments. Management is guiding for gross profit growth of around 13% – 15% over FY25, but at the same time, operating costs are expected to rise by about 25%.
When you put those two points together, it suggests this isn’t just a one-year transition. Instead, it feels more like a two- to three-year period of adjustment before the business can return to what I would consider a “normal growth”.
So, to step back and frame things clearly:
- What’s happening at the company level?
- And what’s happening at the broader macro and industry level?
Headwinds at company level
Audinate’s business strategy as it stands today is built on three key pillars:
- Expanding the Core Audio Business – This includes selling chips, cards, and modules, and software to audio equipment manufacturers.
- Developing the Video Market – Strengthening its presence in video-based solutions.
- Control and Management Tools – A relatively new offering that isn’t yet materially contributing to revenue or gross profit but is crucial for long-term market share and differentiation.
If we think of these as three separate businesses:
- Audio (core segment): Recently hit by inventory destocking, which has made FY 2024 look better at the expense of FY 2025.
- Video: Close to product-ready but facing stronger competition. It requires ongoing investment to sharpen the offering and integrate new acquisitions.
- Control & Management: Still in development. While there are products for small AV installs, enterprise-grade solutions are still being built.
This is quite different from 2020/21, when Audinate seemed to be a single-segment audio business with a substantial market share and potentially significant cash generation in the near future. Today, it’s a three-pillar company, each segment at a different stage of maturity.
Do I agree with the direction? Absolutely.
Extending from audio into video and control is the logical progression to defend market share and expand the addressable market. The challenge is that the company’s cash generation has been pushed further out, while risk from earlier-stage segments has increased. Investors need to reflect these shifts in their valuation framework.
Back in 2020/21, the story was a 25–30% growth business that had completed its heavy investment phase. Now, growth is more likely around ~15% in the near term, with significant investment still required. That said, the payoff could be substantial if Audinate successfully scales across audio, video, and control.
Macro and Industry Headwinds
On top of the internal challenges, the external environment adds uncertainty:
- Tariffs: OEM partners face tough calls on where to manufacture and how much, with tariffs reshaping supply chains.
- End Customers: Many spent heavily during COVID to upgrade AV infrastructure. That spending spree is over, and budgets are constrained.
- Market Trends: Avixa’s Pro AV Business Index (linked here) shows softness across the industry.
Even before we get to the result, it’s clear Audinate is swimming upstream. Financial Performance Breakdown
Given Audinate’s transition from hardware to software, gross profit is the most relevant metric for evaluating performance rather than revenue growth
Gross Profit Growth
The following graph shows gross profit growth. It looks very ugly, but the market had been warned to expect something like this.
Audinate Revenue Trend Breakdown
Although gross profit is the key metric, it’s also worth looking at how revenue is shifting between hardware and software. The chart below breaks down revenue from Cards, Chips, and Modules (CCM), software, and other sources. The good news is that H2 FY25 showed an improvement compared to H1.
From this, it seems likely that the weakness in CCM is more about inventory destocking than a genuine demand collapse. If demand had really fallen, we would expect to see the same pressure on embedded software.
That said, there may also be some cannibalisation at play, with software starting to replace CCM in certain use cases. It makes sense: OEMs designing new devices are more inclined to go straight to embedded software rather than buy CCMs, leaving CCM as more of a legacy purchase for existing customers.
For that reason, I think over the next five years CCM will steadily shrink as a share of revenue, while software becomes the dominant driver of growth.
Operating Expenses
The most surprising part for me is that management successfully reduced operating expenses, performing better than guidance. However, based on guidance, I am expecting around $81m in operating expenses in FY 2026, a new high in terms of expenditure.
The Long-Term Thesis For Audinate Shares
The simple long-term thesis for Audinate is that it will become the de facto networking standard for the Audio Visual (AV) industry for hardware and will provide control and management (SaaS) to end users for all AV products. This will enable the company to command pricing power, achieve high net margins, and generate substantial cash flows at maturity.
For this thesis to play out, Audinate must:
- Be adopted by more manufacturing partners in their product designs.
- Ensure that manufacturers ship increasing numbers of Dante-enabled products.
- Continue training AV professionals through its Dante certification program.
At the end of FY 2025, Audinate has more than 316,000 professionals trained on Dante, and every month, 4000 professionals are getting trained on Dante.
For adoption within OEM, the following two graphs show that the trend is going in the right direction. The number of brands shipping Dante Products was up 2.9% half on half to 490.
And the number of products in the Dante ecosystem grew almost 5.2% half on half to 4,603.
Audinate’s Leadership
Back in October 2024, Claude wrote an article raising concerns about whether Audinate’s management passed his quality filter (link here: https://arichlife.com.au/why-ill-buy-audinate-asx-ad8-shares-after-the-disappointing-agm/). I may not be as critical as Claude, though I do understand the reasoning behind his concerns.
A couple of things stood out for me. First, while executives didn’t meet their FY25 financial targets, the board still chose to award 10% of the maximum STI, recognising what they described as ‘long-term progress.’ Personally, I find this a bit hard to reconcile. If targets are set and then missed, offering discretionary rewards risks blurring the accountability framework. It also makes me wonder, was the same flexibility shown in FY24, when performance looked strong but was largely boosted by customer overstocking?”
Second, the board has shifted the LTI structure to be based on US dollar gross profit growth. On the surface, that aligns with the business transition from CCM hardware to higher-margin software, but it also feels like a KPI designed to flatter results. Gross profit will naturally rise faster than revenue as the mix tilts toward software, so the bar is arguably being lowered in favour of management.
Finally, it’s hard to ignore the timing. Management has flagged a 25% increase in investment in FY26, with benefits expected to flow from FY27, precisely when the new LTI structure vests. Meanwhile, the CEO’s opportunity under the LTI has doubled to 200% of base salary, and his base itself is stepping up to $650k from FY26. The alignment between investment ramp-up, delayed payoffs, and remuneration changes raises fair questions about whether this remuneration structure provides optimal incentives.
Valuation
Audinate has around 84 million shares on issue, with approximately $72.8 million in cash (after considering acquisition cost for Iris) and no debt. At a share price of $5.00, the company’s market capitalization sits at about $420 million, giving it an enterprise value (EV) of roughly $347 million.
Looking ahead, if Audinate delivers around $71 million in revenue in FY26 (assuming ~13% growth), that puts the stock on a revenue multiple of ~5.9x. On the surface, that’s towards the lower end of where it has traded historically. But I don’t think a simple historical comparison tells the whole story. As I’ve outlined earlier, the business growth profile has shifted and cash generation has been pushed further out, near-term investment requirements are higher, and risks have increased. So while the multiple looks “cheaper” than in the past, there’s still a fair argument that the stock is expensive given the current outlook.
For full transparency, I hold shares in Audinate. It’s not one of my larger positions (and recent share price moves have made it even smaller), so I’m comfortable holding for the near to medium term. My long-term view on the business remains intact: the strategy to expand beyond audio into video, control, and management makes sense, and if successful, could allow Audinate to capture a significant share of the AV industry as it shifts to new technology. The potential reward is real, but so are the risks, particularly around timing and execution.
Looking ahead, what matters most to me is whether management can actually deliver on their FY26 guidance without letting costs spiral further (they should be able to beat this guidance in my view). I’ll be keeping a close eye on whether embedded software and video adoption genuinely accelerate, while also watching if Dante CCM sales also grow rather than just being cannibalised by embedded software. On top of that, Dante adaptor sales will remain an important signal of market demand and the ongoing relevance of the Dante protocol for legacy products. And, of course, I’ll be paying very close attention to the decisions coming out of management and the board.
Disclosure: The author of this article owns shares in AD8. The editor Claude Walker also owns shares in AD8. Neither will trade AD8 shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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