Stock Market Analysis

Should I Buy Avid Technology Stock?

Avid Technology is a major software supplier for the entertainment and media sectors, but should you buy Avid Technology stock?

Avid Technology (NASDAQ: AVID) has been at the forefront of the evolution of digital media, giving creators the chance to produce, store, manage, distribute and even monetize the media that they make. The company now has over a million users all across the world. 

It also has many enterprise clients, being a go-to Hollywood for its top-quality range of products and services. This article will explore whether or not Avid Technology is a good investment at this moment in time.

The bull case for Avid Technology

Avid Technology has been making a number of moves in order to become a more efficient business as a result of the COVID-19 pandemic. It has recently refinanced about $250 million worth of debt, allowing it to cut its annual interest expenses by about $10 million. 

It also rolled out a wide range of cost-saving measures last year to save about $30 million, with many of these measures also to be implemented in 2021. The company went from having negative free cash flow in Q3 2019 to a positive free cash flow of $15.5 million in Q3 2020.

Strong growth in its services is set to continue with its subscription revenues increasing 74% year-on-year in Q3 2020. The net increase in paid subscriptions during the quarter was about 27,000. 

About 70% of total revenue is now made up of recurring revenue that has high margins. While total revenue fell 3.2% year-on-year to $90.4 million, net income per common share was $0.10, up from $0.07 a share a year previous.

Despite disruptions during the pandemic, Avid Technology remains the go-to option for film studios. The management team at Avid Technology has been lauded for how it has negotiated the pandemic and looks set to continuing to deliver strong results for the company going forward. 

The bear case for Avid Technology

A number of the core aspects of Avid Technology’s non-recurring revenue streams have been significantly impacted by the pandemic. While the rollout of vaccines will help the likes of live events, it could be a slow recovery for the sector. 

Avid Technology provides a number of different tools for professional music production. The temporary halt of television and film productions also dampened revenues for a time. This was a big reason why revenue fell last year, despite the subscription side of the business improving significantly. 

There is also increasing competition for Avid Technology. The likes of Adobe have been one of the biggest competitors in recent years as do the likes of video editing software and its policy of bundling different subscriptions together. The creative software giant also spent almost $2.2 billion on research and development last year, which is more than double the market cap of Avid Technology. 

So, should I buy Avid Technology stock?

Avid Technology appears to have gotten its financials in a strong place. It recorded its biggest ever free cash flow quarter in Q3. This resulted from a strong increase in profitability, despite revenue declining in 2020 by 3.2%. The company has a strong level of recurring revenue, as well as having a strong array of top-tier products and services. 

Despite increasing levels of competition, Avid Technology looks to have a strong future ahead. Its share price has more than doubled since the start of November, with a P/E of 50.30 currently. Therefore, the price looks a bit expensive at the moment but is definitely worth keeping an eye on

Quickfire round

Does Avid Technology pay dividends?

No Avid Technology does not currently pay dividends.

Is Avid Technology profitable?

Yes, net income per common share was $0.18 in Q3 2020.

How many paid subscribers does Avid Technology have?

Avid Technology had about 269,000 paid subscriptions in Q3 2020.

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Andrew O'Malley
Andrew O'Malley
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.