Avid continues to sink – another declining quarter

[Craig Seeman]

Thanks for that Tim.
Certainly there are viable business models for having a deep and diverse product line but in Avid’s case it apparently isn’t being managed or marketed properly. They may need to do some consolidation, which is not quite the same as simply shedding products or divisions.

One thing that makes Avid an attractive purchase is that they basically have no debt. This means it could buy any purchaser(s) time just as it has bought Avid the time to survive what is a sever year decline (so far).

So far, the steps they’ve been taking over the last seven years seem to have shaving payroll. When you think of the layoffs they’ve had, it’s been stunning. Beyond shedding the “consumer” division(s), which was also another big payroll cut, I don’t think they’ve really made the hard decisions about their product line or services and maybe even the related pricing.

You can look at some of the companies we deal with, Apple, Adobe, Blackmagic and see very aggressive changes in their product lineups, pricing, marketing. Even Autodesk I’d add.

Avid, beyond the radical payroll cutting, doesn’t seem to do much beyond incremental changes in their business model. While their lack of debt allows them to take a slow road, it’s been a road that seems consistently in the wrong direction, if it has any direction at all.

[Franz Bieberkopf]

Tim,

Those interested may want to look beyond the SCRI headline as well.

https://ir.avid.com/releasedetail.cfm?ReleaseID=696597

Franz.

[Oliver Peters]

[Franz Bieberkopf] “Those interested may want to look beyond the SCRI headline as well.”

Which actually paints a different picture. At least one in which dumping Pinnacle and M-Audio is more than justified. Pertinent lifts:

“Excluding revenue from the consumer product lines divested on July 2nd, the revenue for the three-month period ended June 30, 2012 was $143.7 million and the revenue on the same basis for the three-month period ended June 30, 2011 was $137.3 million.”

“The GAAP operating loss for the second quarter of 2012 was $37.8 million and excluding the items identified above, except tax adjustments, the non-GAAP operating loss for the second quarter was $2.1 million.”

” “Our results for the second quarter were encouraging with 5% year-on-year revenue growth for our ongoing business and a $10 million sequential increase in our cash balance,” said Gary Greenfield, chairman and CEO of Avid. “This performance reinforced the strategic direction we took earlier this month and we are excited about our prospects for the second half of the year.” ”

Granted, a bit of positive CEO spin, but still a different perspective.

– Oliver

Oliver Peters Post Production Services, LLC
Orlando, FL
http://www.oliverpeters.com

[Tim Wilson]

[Eric Santiago] “Can Autodesk afford Avid? Might as well they have the top three 3D apps under their wing.”

Avid sold Softimage to Autodesk in 2008. Is there something else you’re thinking of?

[Craig Seeman] “Avid, beyond the radical payroll cutting, doesn’t seem to do much beyond incremental changes in their business model.”

I’m not convinced that their business model needs changing. Gross margins are 48.6% – damn good when considered how much they spend to manufacture big hardware products like ISIS and Pro Tools consoles. There are companies, even entire industries, that would kill for this kind of margin. That’s on revenue of $143.7 million in the quarter, which is pretty close to real money.

To phrase it in the form of a question: is it possible for a company to make a profit on 49% of $144 million? Yes, as long as you’re spending less than 51% of $144 million to keep the lights turned on.

Which is what Avid isn’t doing, as seen in their net margin of -24.8%! I’m oversimplifying, but that’s a swing of nearly 75% in the wrong direction.

To become profitable they have to either increase income or cut expenses, or both. For their NLE business anyway, they’re taking exactly the steps you’d WANT them to take in order to increase income: lowering prices, separating software from hardware, opening more dramatically to third parties.

What’s left? Cutting expenses. I’m not a business whiz, but is profit more complicated than making more than you spend?

As I’m thinking about it, though Craig, you’re right to raise a larger question — can you make a profit in THIS market, making THOSE products, on $70-ish million/quarter? The answer may simply be no, it takes more money than that to do what they’re trying to do. I don’t know.

Anyway, I’m not a big fan of stockwatching, but it is worth noting that The Street has Avid as one of 5 tech stocks poised to break out (in a good way). Motley Fool has Avid rated as set to outperform in its sector (by a score of 88 to 45), and twice as many of their top guys give Avid a green thumbs up as give it a red thumbs down (24-12).

Although who the hell knows what they mean by sector? Over at Yahoo, most of the competitors they list are GAMES companies.

Of course we know that there’s no alternate universe where either Apple or Adobe belongs in a list of Avid competitors, but this gets back to my previous post — Avid doesn’t have A core market. It has a dozen of them. Nobody else is trying to reach more than one or two of them.

Anyway, the near-impossibility of making sense of all this is what makes it so much fun to kick around. A whole bunch of MBA students are going to make their bones by using Avid as a case study, and it’s unlikely that any of them will come to the same conclusions.

Other than the one about needing to make more than you spend.

Tim Wilson
Vice President, Editor-in-Chief
Creative COW Magazine
Twitter: timdoubleyou

The typos here are most likely because I’m, a) typing this on my phone; and b) an idiot.