When people were stuck at home during pandemic lockdowns and in need of a creative outlet, sales of Focusrite's musical equipment skyrocketed. In this Fool Live segment from "What in the World," recorded on Feb. 11, Motley Fool contributors Chris Nials and Ian Pierce discuss the likelihood that the momentum can continue. 

Chris Nials: This is the audio technology companies Focusrite. What do these guys do exactly in layman's terms?

Ian Pierce: Well I'm not musical expert. I stopped playing violin at like 14 once I wasn't told to go do it! I'm not the expert either so I will be using layman's terms cause it's all I know. Focusrite, they basically run the gamut from amateurs just starting out to world-famous musicians, producers, so anything you need. Synthesizers, audio interfaces, speakers, studio monitors, headphones, I had to write down some of those complicated words to remember. But anything where you're actually trying to make money out of music you're going to buy something that may well come from Focusrite or one of their seven other brands.

Chris Nials: Nice. Okay. Good summary there. In terms of it as a company they're still pretty new to the market I think aren't they? I think the IPO'd in 2014 so it sounded like when I wrote that down initially it's sounded like yesterday 2014. But here we are eight years later. They've really carried themselves pretty admirably since then, haven't they? I was looking at the share price charts earlier and I think they have been a bit of a tear really since mid-2020, which by the way I would have to say as a well done you that was just before you recommended it in our small-cap service here in the UK. Great work. I think is actually up around about 190 percent since March 2020, which really is some going. What do you think has been responsible for the tear away that they have been on?

Ian Pierce: Well, during lockdown we all expected the music industry to really suffer and certainly Martin Audio, their one sub-brands that does products speakers and whatnot for live music events, that one got hammered but everything else did very well because people were stuck at home. Everybody started making a podcast or you wanted to become the next TikTok star because that's much easier these days than it used to be to make music. You could go buy a fairly cheap Focusrite product and you can make your music at home. When everybody was stuck at home you bunch of amateurs doing podcast, new music all of that stuff. They were doing very well before COVID to be clear but it's really accelerated during the pandemic.

Chris Nials: Nice, it's always good to see isn't it and I think it's certainly one of those companies and you know that anything that could be done at home anything that could be construed in any way of being a new hobby that people can pick up is definitely had that lift, Focusrite definitely in that bucket as well which is always great. Now obviously growth from anywhere is good to see especially from a small niche, small-cap especially UK based small-cap as well like Focusrite. But I suppose when you look at that growth is there any danger that could now slow down now we're sort of out of the lockdown scenario, doesn't seem to be hopefully touched with any others on the horizon. Now we're in that post-pandemic scenario. Would the share price suffer if we don't see that continue to the stratospheric hockey stick growth chart. I guess what I'm trying to ask is the share price going to slightly inflated at the moment?

Ian Pierce: It's really, it's impossible to say but certainly you don't have to look very far for other COVID winners that have been I mean more than the estimated they're down more than 10 percent, Peloton those things. It's absolutely a worry. Thankfully, I think there's a little bit more to Focusrite than just this COVID boom this is just a one and done. These are products that people really need so as long as they call it basically just content creation, audio creation. As long as more people are going to be podcasting, more people are going to be trying to make music as an amateur, as professional. In the long run the demand outlook is pretty good, certainly in the short-term sales will slow down because they've been growing at more than 30 percent over the last couple of years so really asked one of the growth for the business. Then also thankfully, they run very healthy balance sheet, they've always been profitable. They've been growing without growing the share count. The company is chaired by its founder, co-founder and it's still very much running the very same way. They're not getting crazy, they're not thrown out a bunch of new shares to go buy something new, they're not getting over-leverage, they're not bringing on too many people. They're doing what they need to do and they're taking advantage of this pandemic boost. But if it goes away, the business is still going to be OK and be there.

Chris Nials: Yeah. It's really interesting. You say that I think it's interesting as well because it clearly a company that straddles both ends of their market, you mentioned earlier that they've obviously got the hobbies that have picked it up perhaps over lockdown period thoughts. The products they make are over that sufficient quality that real seasoned music industry professionals like I think, reading their client list they've got people love Madonna's, Sting, Beyonce, all people love that standard that really use their product. I think I read somewhere that some of the Wu-Tang Clan even referenced one of their names in one of their songs. It's that wonderful marketing without having to pay for for which is always [laughs] a real win for this companies, but I guess the next question would be, with that range of artists in terms of experience using their products, where is the growth come from do you think in the not-too-distant future?

Ian Pierce: One is just what I talked about, we're just general market growth because more people are creating more content for YouTube podcast music, whatever that helps. They've also been very good about acquiring in certain businesses where they say, maybe we need a high-end synthesizer, we're going to go out and spend 25-million and buy the best in the business. They call it the Rolls-Royce of synthesizers that they just acquired. Or they said, "You know what? We need a little bit more exposure to live music." They went on and bought Martin Audio. Unfortunately, I bought one just for the pandemic hit, but thankfully they own it now everything is coming back. That business should be OK.

So there's opportunities to widen their range of offerings and they've also focused a lot on software, they've always been very big in electronic music with their innovation brand that does synthesizers. They've done very well there and the benefit of that is that it's a lot of it is software-driven, so they think, if people want to make electronic music in their own home, they need the software to do it, they've started selling more software. They've got a little bit of subscription revenue stream coming from their IOS app, still very small I think they're talking about 5,700 subscribers or something. But in the long run they think, "You know what? We can try this, we can try software." They've just done a very good job of broadening what they do.

Chris Nials: It's interesting you mentioned that recurring revenue as well because it's one of those products, isn't it? Where they are good quality products, people that are wanting them aren't going to be buying a new one every few months all they. It's nice to have just that tiny part of the business that's purely powered by subscription revenue, which is lovely to see. That's the first one, it's a really interesting company I have to say, it's ticker, TUNE, T-U-N-E on the London Stock Exchange if you want to check them out.