Tuesday, September 25, 2007

Avid Tech (NASDAQ:AVID): Checks pointing to a weak Q4

- Piper Jaffray is out with an interesting call on Avid Tech (NASDAQ:AVID) saying that while post production resellers checks point to an in-line Q3, they believe Street estimates for Q4 may be too high.

Of the 10 resellers in PJ's checks, six saw flat demand q/q in Q3, while three saw an increase in demand q/q and one was tracking down sequentially. On average, resellers indicated that their Avid video business is up 5% sequentially (essentially in line with their model at up 3%). 40% of the resellers the firm spoke with said they do believe the ongoing transition at Avid is starting to disrupt their Avid-related business.

Street models assume Avid Q4 revenue will be up 8% q/q. Resellers in checks were split between: 1) expecting an up sequential Q4, and 2) uncertain pipelines that could lead to an up or down sequential Q4. Given Q4 is typically a seasonally up quarter, the firm was somewhat surprised by the high level of uncertainty among resellers on whether they felt they would see a sequential uptick. PJ believes this uncertainty regarding Q4 pipelines is a sign that Q4 Street estimates may be aggressive.

They are taking their tgt to $27 from $32, maintain Mkt Perform rating.

Notablecalls: AVID's a bit of a mess here. The CEO David Krall decided (or was forced) to leave on July 16, leaving behind a somewhat troubled co. The stock has been weak over the past 3-4 months, most likely discounting the fears highlighted in today's PJ call.

On the valuation side, we still have the stock trading 20x CY07 EPS and around 17-16x FY08, which does not look cheap enough, given the problems and slowing growth AVID seems to be facing here.

Note that the co warned same time last year (Sept 25) and given PJ's checks, I would not be surprised to see another warning in the n-t.

AVID continues to be radioactive here and I suspect the stock will get hit further.

I don't see seasoned players stepping into AVID until the stock hits say $20-$25 level. That's where it seems to be heading currently.


Chuck said...

While Avid is certainly messy now, it also may be sowing the seeds for a turnaround. It's hard to find a $900MM revenue software company with operating margins as low as AVID at about 2%, when the norm is 15% +/- 500 bps. Bain study will result in massive cost cutting and higher margins. While competitive threats have certainly grown for AVID and Q4 may not be pretty, it's reasonable to assume that a new CEO and higher margins will make this company more attractive to investors. Furthermore, AVID is still the leader in video post-production and broadcasting as well as audio and would make a fine acquisition target for players looking to gain a strong foothold in this data intensive industry (can anyone say Oracle?).

notablecalls said...


Right on! Bain + new CEO is something that could help the stock at least in the s-t.

I suggest you buy AVID after it either warns or guides down for Q4 in a month. At least that's something I'd consider.

ORCL? No way! An acquisition like this one would kill its multiple.

Thanks for the comment.