Here's why the Atomos (ASX:AMS) share price is sinking 8% today

It seems investors aren't responding well to the latest updates from the tech company.

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Shares in Atomos Ltd (ASX: AMS) haven't found solid ground today and are sliding 8% in the red at the time of writing.

At last check, Atomos shares were changing hands at $1.18 apiece, after trading as low as $1.04 just before the afternoon session.

Atomos started the day behind as investors responded poorly to a set of market updates.

The tech company that specialises in products for the content creation market first provided an update on a US$2 million investment in a cloud development agreement. Shortly afterwards, it confirmed its FY22 guidance.

Let's take a closer look.

What did Atomos announce?

Atomos advised it has entered into a cloud development agreement with Cinemacraft Inc to fund the completion of its Videogram platform.

The release notes that Cinemacraft's CEO and founder Sandeep Casi developed Videogram as a "cloud-based platform with a vision to automate video workflows to deliver unique opportunities for video creatives".

Atomos will invest up to US$2 million to complete the development of the Videogram platform, including US$800,000 for patents and oversight.

Cinemacraft has a string of flashy investors on its books ranging from venture capital firm 500Startups to a Japanese actor. According to Atomos, the investment builds on its depth in video and multi-camera capture to expand into cloud-based services.

The agreement also has an embedded option that allows Atomos to acquire all shares in Cinemacraft. Atomos may exercise its option based on the financial performance of Videogram over two 12-month periods ending September 30, 2023.

Regarding the agreement, Atomos Chief Executive Officer Estelle McGechie said:

We are delighted to partner with Cinemacraft; they have developed unique cloud solutions that will underpin an exciting new chapter for Atomos. When you combine Sandeep's experience developing technology at Fuji Film and ILM for Lucas Films, with his passion for using machine learning to simplify a creator's journey, you can see Videogram is poised to reinvent the way online video is discovered, consumed, shared and monetised. I look forward to working closely with Sandeep and his team to help realise the potential of Videogram.

What about Atomos' FY22 guidance?

Further to the cloud agreement, Atomos also advised on its FY22 full-year guidance today. The company expects revenue to be in excess of $95 million, an increase of at least 21% over FY21 revenue.

First half revenue is anticipated to be in excess of $40 million, up 22% year on year despite being "impacted by supply chain challenges".

Earnings before interest, tax, depreciation and amortisation (EBITDA) margins are expected to be upward of 12%, up from 10.4% in FY21. Also factored into this EBITDA margin guidance is some upward pressure on variable costs, most notably freight, according to the release.

The forecast EBITDA margin relates to the underlying Atomos business and excludes approximately $1m of operational costs resulting from the investment in Videogram.

Commenting on Atomos' guidance, McGechie said:

In effectively managing our supply chain to ensure sufficient stock to meet our sales targets, we have in inventory during the first half and as a result will experience a cash outflow.

The Atomos share price has gained almost 24% in the past 12 months, after rallying 22% this year to date.

However, in the past month, it is down by more than 20% and has fallen 9% in the past week.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Atomos Ltd. The Motley Fool Australia has recommended Atomos Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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