3 Audio Video Stocks to Consider From a Flourishing Industry

The Zacks Audio Video Production industry participants are concentrating on the premium segment of the branded products market for business growth. Sony Group Corporation SONY, Dolby Laboratories, Inc DLB and GoPro, Inc GPRO are likely to benefit from investments in cutting-edge technology solutions that create better communication experiences. The players also stand to gain as they increase focus on direct-to-customer sales channels. Rapid technological advances like 4K, 8K, and immersive audio formats are boosting demand for new devices, which bodes well for participants like GoPro and Dolby. Moreover, with streaming platforms becoming a way of life, these are driving the need for better home sound systems. This is likely to benefit participants like Dolby.  A highly promotional environment and stiff competition from importers of comparatively low-priced devices are denting margins. Online accessibility of recording equipment and the availability of distribution channels on the Internet are additional headwinds. Also, tariff troubles could lead to increased production costs and also impact consumer spending.

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 theatrical and television production services for cinema exhibitions, 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.

4 Trends Shaping the Future of the Audio-Video Production Industry

Technological Advancement to Spur Growth: Over the years, the shift to digital technology catered to the demand for high-resolution video and reduced the problems of radio frequency and electromagnetic interference, making audio-visual systems more data-network friendly. Wireless transmission has enabled the seamless broadcast of audio and video signals through wireless data networks while enhancing productivity. Industry players have been offering services to diverse media producers. That said, easy online accessibility of recording equipment and the widespread availability of distribution channels on the Internet are hurdles.

Increasing Demand for Premium Entertainment: The industry performed well despite drastic changes in how media is consumed and distributed. The rise in demand for premium entertainment from record labels, TV producers and advertisers is likely to stoke profitable growth. Strong demand across all regions with a more direct-to-consumer, subscription-centric model bodes well for the industry participants.

Macroeconomic Headwinds Likely to Hurt Consumer Demand: The global macroeconomic uncertainty amid escalating trade tensions and tariffs and associated inflationary pressure are likely to keep consumer spending, especially discretionary purchases, in check. While companies keep investing in market share gains and supply chain resilience, a shortage of critical hardware components due to disruption in the supply chain could hurt revenues in the near term. Fluctuations in commodity pricing for different components are additional concerns. Elevated promotional activity to boost sales amid weak spending is also affecting the performance of these industry participants.

Aggressive Competition: In the United States, smart-connected televisions, microphones, and speaker enclosures are the most popular electronic devices among customers. However, U.S.-based manufacturers of audio and video systems face intense competition from importers of comparatively low-priced devices, particularly from China, Vietnam and Mexico. These firms face stiff competition across all end markets, often leading to intense price wars and margin contraction.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Audio Video Production industry is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #3, which places it in the top 1% of more than 247 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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 two to one.

The industry’s positioning in the top 50% of the Zacks-ranked industries results from an upbeat earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2025 now stand at $1.31 against a loss estimate of $1.18 as of Dec. 31, 2024.

Before we present a few audio-video production stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms the Sector and S&P 500

The Zacks Audio Video Production industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite in the past year.

The industry has jumped 31.2% over this period compared with the S&P 500’s growth of 5.4%. The broader sector has surged 2.3% in the said time frame.

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 1.51X compared with the S&P 500’s 5.07X. It is below the sector’s trailing 12-month P/S of 2.05X.

In the past five years, the industry has traded as high as 1.88X and as low as 0.97X, with a median of 1.33X, as the chart below shows.

Price-to-Sales TTM Ratio (Past Five Years)

3 Audio Video Production Stocks Keep an Eye on

GoPro: Headquartered in San Mateo, CA, GoPro is one of the leading manufacturers of the world's most handy cameras, as well as mountable and wearable accessories. 

Strength in subscription revenues, backed by improving retention rates, is buoying GPRO’s performance.  Aggregate retention rates reached 69% in the fourth quarter compared with 67% in the year-ago period. It recorded 2.52 million subscribers (including 70,000 Premium+ subscribers), marking 1% year-over-year growth in the fourth quarter of 2024. To boost its subscriber base, it enhanced its subscription service through benefits and user awareness and aims to work more closely with its retail partners, both in North America and abroad. 

Focus on operational efficiencies, introduction of a new 360-camera and expansion of supply chain outside of China are likely to boost gross margin performance in 2025.  Operating expenses in the first quarter are forecasted to be $63 million (+/- $2 million), a 24% reduction year over year due to lower spending on wages, reduced marketing spend and lower non-recurring engineering expenses related to the completion of GP3. Operating expenses in 2025 are expected to be $250 million to $260 million, down $100 million from 2024, due to a 26% reduction in headcount and other expenses undertaken in 2024. This is likely to boost profitability. 

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

The Zacks Consensus Estimate for its 2025 bottom line is pegged at breakeven, unchanged in the past seven days. Shares are down 74% in the past year.

Price and Consensus: GPRO

Price and Consensus: SONY

Price and Consensus: DLB

 

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Sony Corporation (SONY): Free Stock Analysis Report
 
Dolby Laboratories (DLB): Free Stock Analysis Report
 
GoPro, Inc. (GPRO): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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