Atomos designs and manufactures monitor-recorders, which can be added to existing video equipment to turn standard-definition cameras into high-resolution systems. The monitors can be added to phones, tablets or professional video recorders, allowing for a simpler interface for editing and distributing content.
The company has spent the past three years investing heavily in its intellectual property with the design of a new chip to power its video and picture display and capture screens. This work has culminated in the release of NinjaV, a hit product with pro video users. The business is now poised to leverage its significant R&D and proprietary relationships to push deeper into the social and entertainment markets, which are worth multiples of the pro video segment where Atomos has had most success to date.
The number of social media content creators has increased 23% per annum since 2012, with content distributed through free, ad-click-driven platforms such as Facebook, Instagram. Twitter and YouTube, and the need to monitor, capture and control higher-quality content is accelerating. Industry-wide entertainment budgets are also ramping up due to modern studios formed by streaming services such as Netflix, Amazon and AppleTV.
Major camera manufacturers have provided Atomos with access to their compression algorithms to allow it to link in with their products, thereby providing a deeper experience for users. In addition, Atomos has one of only two companies with access to Apple’s ProRes RAW code, offering a leg-up on competitors with customers wanting to capture/edit in one of the market’s leading formats.
Ord Minnett has initiated coverage of Atomos with a Buy recommendation and a $1.75 target price. We expect operating leverage to drive annual operating earnings growth of 49% and net profit growth of 71% over the FY20–25 period, from revenue growth of 21%. The key risks to we see to our forecasts include: 1) potential for input price and currency fluctuations; 2) increased competition; 3) macro-economic risks to the supply chain; and 4) a lack of formal contracts with some partners.