Focusrite points to market share gains as it faces challenging conditions

This was always going to be a tough set of results for Focusrite (TUNE), after the music and audio hardware and software company cut its guidance last month in a context of "challenging market conditions". The shares lost a quarter of their value after that update, and they dropped by 10 per cent on the morning of the results as the business contends with a continuing comedown after a pandemic demand boom. 

As expected, it was a tale of two divisions. Content creation revenue cratered by 19.8 per cent to £54.1mn, hit by oversupply and a tough macro environment for selling pricey audio equipment. On the other hand, audio reproduction revenue surged by 21.4 per cent to £22.8mn as the post-pandemic rebound in demand for in-person experiences such as live concerts goes from strength to strength. 

The gross margin came in at 45.8 per cent, down 130 basis points year on year. 

While the content creation arm is faced with some challenging headwinds, it has to be remembered that the business is trading at a notably elevated level against pre-pandemic figures. The company said that demand for its key Scarlet products is 50 per cent higher than before Covid-19, with global end-user registrations in line with last year.

Chief executive Tim Carroll told Investors' Chronicle that "the general vibe [in the industry] is that things are starting to get back to normal, but it is taking time to work through this". He said that Focusrite is outperforming the industry and growing market share.  

With the shares down by a third over the past 12 months, investors can now get in at a much lower entry point. But a valuation of 17 times forward consensus earnings prices in the opportunity. Hold.  

Last IC view: Hold, 452p, 28 Nov 2023