Audio-visual technology company AD8 delivered a soft 1Q25 update yesterday, with further downgrades to gross profit guidance reflecting ongoing challenges including softer demand due to slower clearance of inventories from manufacturers. The stock was hit hard in the morning, down 16% at the lows, however, it recovered a lot of the initial plunge to be down ~6% by the close – not a bad effort considering.
While the 1Q was always expected to be the weakest of the year (generating $US7.2 Gross Profit) as they worked through over-ordering from customers which was an issue they flagged as they downgraded earnings pre-FY24 results in August, their guidance for more of the same in Q2 was a surprise. If we assume the same sort of profit in Q2, that puts 1H25 gross profit at ~$US14.4m which is about 30% below consensus.
They have been upfront in saying that FY25 was going to be a transitional year before returning to growth in FY26, but we underestimated the impact of overstocking from their customer base. That said, a few positives were scattered through the litany of disappointment, with new AVIO products and a premium version of Dante Virtual Scorecard expected to contribute to 2H25 earnings.
- All in all, AD8 still enjoy a very dominant market position and the structural drivers around Audio & Visual continue to stack up, we’ll just need some patience here by the look.
There’s a saying often used in the market: ” Buy the third downgrade.” If they disappoint again in a “clear the decks” style move, the risk/reward will start to look very interesting.
MM remains cautiously bullish AD8
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