Multimedia technology specialist Avid Technology (AVID +0.00%) just released an early look at next week's full-fledged Q3 report. Shareholders probably wish the company had kept quiet.
Avid shares plunged as much as 18.6% on the pre-announcement. Here's why:
| Metric |
Preliminary Results |
Analyst Consensus |
|---|---|---|
|
Revenue |
$126 million |
$145 million |
|
GAAP Earnings per Share |
($0.46) |
($0.22) |
|
Non-GAAP EPS |
($0.10) |
$0.14 |
Financial data from Avid's press release and S&P Capital IQ. Avid's pre-announcement gave us modest ranges of expected final figures; the numbers above mark the midpoints of these ranges. Estimates compiled by Standard & Poor's.
In short, this quarter will be a massive disappointment on both the top and bottom lines.
Management pins the miss on sales execution in the Americas region, made even worse by "transitional issues" that arise from Avid's restructuring efforts. The company decided to rid itself of its consumer-grade audio and video tools in order to refocus on the professional market, mainly because Apple (AAPL +0.11%) is turning up the heat on the consumer sector.
Removing itself from the consumer market may have been Avid's smartest business decision in years. Cupertino's iPad-based attack removed all the low-hanging fruit from Avid's hobbyist sales, and the company can't afford to reach for what's left. So Avid's basic audio and music tools are now part of privately held inMusic while recently privatized rival Corel manages the low-end video tools. Good luck with that.
Avid's investors are left wondering what value there might be left in the reformed company. CEO Gary Greenfield seemed excited about the opportunities in front of him on the last earnings call. "Some trends, like the move from analog to digital or from SD to HD, are well understood and have been under way for some time."
He continued:
Others, such as the switch to online and mobile consumption or the emergence of cloud-enabled technologies, are still relatively new. In all cases, we think an exceptional opportunity exists to lead with innovative solutions that anticipate customer needs and fulfill increased market requirements. We believe that Avid is uniquely positioned to best meet our customers' needs.
If so, Greenfield had better make sure that he can actually capitalize on these blooming markets. Otherwise, let's face it -- Apple would be more than happy to see Avid drive itself to the brink of bankruptcy -- and beyond.
We'll know more next week, when Avid publishes the final numbers and talks about the reasons behind them. For now, let's just say that my bear-flavored CAPScall on Avid has never looked stronger.
