January 20, 2022

On Avid Technology

 

Avid provides a range of subscription-based software solutions for TV broadcasts, music composition, live sound, and video editing. Many of the movies, music, and TV broadcasts consumers enjoy every day were created using Avid's software tools. Unlike Zoom and Logitech, Avid's share price has doubled over the last year following improved operating results in 2021, but it's just getting started.

One thing to like about Avid's business is that three-quarters of its revenue is recurring, based on long-term subscriptions with customers. This provides good visibility into future growth and warrants a high valuation, but the stock looks cheap right now.

The stock sells at just 21 times this year's earnings estimates, despite 35% year-over-year growth in the subscription count in the third quarter. For the full year, revenue is expected to increase by 11% for 2021 based on management's guidance. But Avid could see its top line accelerate over the next few years, considering the recent momentum with subscriptions and long-term trends benefiting the business.

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