Avid Technology (AVID) stock nears yearly high amid competition fears

Avid Technology Inc. (NASDAQ: AVID) stock has been trading near the yearly high of $10.79. The stock has risen over 87% in the past year and over 39% in the past three months while falling over 12% in the past six months. The stiff competition in the market could turn out to be a major concern for the company.

Investors were positive about the company’s future in the development of software, hardware, and integrated solutions for video and audio content creation and distribution. The new growth areas including cloud and artificial intelligence could be the major driving factor for the company despite the stiff competition.

The company continues to be benefited from the clear strength of its recurring revenue subscription and maintenance business as well as significant execution challenges related to supply chain transition. For surviving in the media and entertainment domain, Avid is likely to join hands with major enterprises in a sticky, long-term relationship.

The future growth is likely to be driven by several macro trends. This includes content creation, immersive audio, media enterprises in digital transition, and cloud transition. Cloud and artificial intelligence (AI) will help media enterprises achieve greater synergies and efficiencies.

Avid is expected to expand its margins through operational efficiency and new products. The operating expenses discipline is likely to happen due to additional internal efficiencies. The company expects to grow free cash flow conversion with more efficient working capital and interest expense.

Looking ahead into fiscal 2019, the company expects revenue in the range of $405-415 million and adjusted earnings of $0.50-0.60 per share. For the full year 2020, revenue is predicted to be in the range of $417-437 million and adjusted earnings of $0.84-0.93 per share.

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For the third quarter, Avid Technology reported a 260% jump in earnings driven by lower costs and expenses despite a 10% drop in the top line. The revenues were hurt by the challenges implementing the new supply chain model, including ramping up the new production lines.

The principal sources of liquidity include cash and cash equivalents totaling $52.3 million as of September 30, 2019, while the total debt stood at $265.84 million. The company has generally funded operations in recent years through the use of existing cash balances, supplemented from time to time with the proceeds of long-term debt and borrowings under its credit facilities.

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