Discounting Pro AV Growth

Discounting Pro AV Growth

Questions about how inflation may be affecting forecasted pro AV growth continue to come in over here. Notionally, the idea is that while we may be showing growth in global revenues, some of this would be due to inflation and so should be discounted by an amount to generate the real growth rate. Applying this to our current forecasts would mean if growth is 10.5% for 2022 and headline US CPI shows 8%, then real growth would be only 2.5% for the year, right? Not so fast, as there are many issues here due to the underlying assumptions that calculation makes.

Let's start with the inflation number used for the 'discount rate'. The consumer price index, or CPI, represents the percent price change for the basket of goods of the average consumer—not the corporate purchaser of AV. As such, it does not represent pro AV and does not include professional grade pro AV equipment and services. This argues against CPI as a discount rate. The trouble is there isn't necessarily a more representative indicator of pro AV pricing. And since finance teams like to think about the value of the dollar based on a widely available metric like CPI, we'll just use it as a placeholder for the sake of argument for the moment.

The next figure to use from the equation is the expected growth rate. Our current estimates were put together back in March and April of this year, at which point inflation was expected to have subsided more for the year. Instead, it has held at a higher amount. Furthermore, it was based on a more gradual return of demand for pro AV, which instead ramped quickly in the first half of the year based on our monthly and quarterly studies. The combination of this means that 2022 growth was likely further bolstered by price increases and demand surges, putting it closer to perhaps 15%. 

Working off these assumptions, this would mean real growth for pro AV revenues in 2022 equal to 7% (15% for pro AV 2022 revenues minus the 8% placeholder from CPI). To stress, these assumptions are likely not exactly true, particularly about real AV pricing, which has not experienced increases across the board. But as a very loose calculation, it demonstrates that pro AV is seeing real increases in its revenue streams, even after relative adjustments for inflation are applied. Stay tuned as we sharpen our calculations in the coming months. 

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