The ASX tech share Audinate Group Ltd (ASX: AD8) has had one of the toughest reactions during reporting season so far. The stock dropped just over 20% after releasing its FY25 result.
Audinate provides the Dante IP networking solution, which claims to be the worldwide leader and is used extensively in the professional live sound, commercial installation, broadcast, public address and recording industries. Dante technology powers products from hundreds of leading audio and video partners around the world.
The company reported that revenue declined 33% to US$40 million, gross profit dropped 26% to US$44.5 million, underlying operating profit fell A$19.6 million to A$0.7 million, net profit worsened by A$16.6 million to a loss of A$6.4 million and cash flow sank 70% to A$7.5 million.
Audinate revealed it expects its FY26 gross profit to grow by between 13% to 15% year-over-year in US dollar terms. However, FY26 operating costs are expected to soar 25% year-over-year.
We're going to take a look at what Macquarie thinks of the report.
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What did analysts make of the ASX tech share's result?
The broker said that medium-term growth has been revised for the company. Macquarie wrote:
After over-earning through Covid, AD8 is rebasing sales and volume expectations to 2-3x the 5Y fwd market growth CAGR. This implies a 7.7% reduction in the 5Y forward gross profit CAGR at the midpoint to 9.75%.
In other words, the company's revenue growth is not expected to be as high in the next few years.
Macquarie acknowledged that the network management and control are attractive market segments, with the business benefiting from the Iris acquisition. But, competitive intensity is higher than in its core audio business.
Key competitor NDI is a first mover in the video segment and has 52% of video networking products, while Dante has just a 2% market share. Macquarie said that OpenAV Cloud includes of a number of Audinate's key customers as signatories, signalling potential headwinds.
Macquarie said there is "limited evidence of video sales growth since the Silex acquisition in 2022."
On the operating expenditure growth to support new product rollouts, it's unclear how much of this reinvestment is for growth or maintenance.
After seeing the result, Macquarie reduced its earnings per share (EPS) forecasts for FY26, FY27, FY28, FY29 by 830%, 567%, 264% and 180%, respectively. In other words, it's not expecting losses for those years. This is because of lower medium-term growth prospects, elevated reinvestment to support Iris and limited upside for Iris (with execution risk and how early-stage it is).
Is the Audinate share price a buy?
Macquarie currently has an underperform rating on the ASX tech share, with a price target of $4.30. That implies where it thinks the Audinate share price will be in 12 months from the time of the investment call.
The broker is implying the Audinate share price could fall 17.5% from where it is. Macquarie summarised its thoughts on the business with the following:
After two downgrades and with investor expectations still rebasing, there is limited evidence of a near-term recovery. With the majority of revenues non-recurring, at A$293m EV, burning cash and with little evidence of meaningful financial delivery in Video to date, maintain Underperform.
