Corsair Gaming Inc [NASDAQ: CRSR] is engaged in the business of providing high-performance gear for gamers, PC enthusiasts, and content creators to help them produce studio-quality content.
The company designs, markets, and distributes gaming and streaming peripherals, components and systems across the globe. Corsair operates in two segments:
- gamer and creator peripherals, and
- gaming components and systems.
Corsair’s extensive range of product portfolio includes keyboards, mice, mousepads, gaming headsets, game and video capture hardware, microphones, power supply units (PSU), gaming computers, gaming chairs, video production accessories and docking stations, capture cards, stream decks console and PC gaming accessories, including controllers, microphones, DRAM modules, and other related products.
Its product offering has two software platforms: iCUE for gamers and Elgato’s streaming suite for content creators.
The Bull Case for Corsair Gaming
Sales of gaming PCs (personal computers) and related hardware increased manifold in 2020 as lockdowns and shutdowns compelled people to stay indoors. Corsair Gaming was a big beneficiary of the pandemic as people trapped inside their homes took to gaming in a big way to shun boredom.
However, it would be wrong to assume that it was a Covid phenomenon, and people would lose interest in gaming after the pandemic.
Covid may have accelerated the trend, but this sector was witnessing explosive growth well before the pandemic. Gaming sales grew from $140 billion to $150 billion between 2018 and 2019, and the market is projected to reach $287 billion by 2026.
In fact, worldwide gaming sales hit a record $180 billion in 2020, a sum that was more than what the global film industry and US professional sports together generated in 2019.
Covid, along with the release of the new PlayStation and Xbox consoles, all played their part in providing a massive boost to this sector, but it would be unwise to give the entire credit to them for the booming gaming market.
Over time, gaming has grown from a single-player activity into a competitive, organized spectator sport involving multiple players. Streaming and esports, two byproducts of this shift, have created entirely new sectors within the broader market, and they are bound to hugely benefit the sellers of video gaming hardware and peripherals like Corsair.
Stay-at-home orders are being lifted across the country as the US met the benchmark of administering 200 million doses of the Covid vaccine by President Biden’s 100th day in office. Covid cases in the country are falling sharply as well and things have started returning to normal. All this would lead many people to believe that the golden days of streaming and esports are over.
Gaming Consumption Hits All-time High
But they are as wrong as Humphrey Belcher who believed the time was ripe for a cheese cauldron (Harry Potter fan, anyone?) Twitch hours once again hit an all-time high of 2.2 billion hours in March.
Twitch is an American video live streaming service geared towards gamers. Launched in 2011, it focuses on video game live streaming, including broadcasts of esports competitions. All this shows that streaming isn’t going anywhere in 2021.
Millions of unique players tune into streaming platforms like Twitch to watch their favorite streamers, create their own unique content and communicate with the wider gaming community from across the globe.
Data shows that Twitch generated over $2 billion in revenue in 2020, and much of this was shared with content creators.
Corsair is already a fixture in the gaming scene, and the company is well-positioned to reap benefits across the broader gaming sector with the explosion of streaming and the rising demand for webcams, controllers, audio equipment, green screens, video editing software and sundry other gaming peripherals.
Additionally, esports, one of the hottest trends in the media and entertainment industry, has been growing at a precipitous pace over the last few years. Let’s see how big this market is today.
Even before the pandemic struck, esports had been a big deal. In fact, esports is one of the fastest growing industries in the world, and it is estimated to be worth somewhere in the ballpark of $1.8 billion by 2022.
It’s a gigantic industry, attracting the largest audience on the planet, and expected to reach 650 million people by 2023.
Forbes reports that esports pro athletes have been growing more than 40% annually every year since 1998. Esports is outpacing the rest of the media market with over 8 million people logging in every day to take part.
Corsair Acquisitions Make It A One-Stop Shop
Corsair, well aware of this industry’s potential to make big money, has positioned itself well to cement its place in the highly lucrative streaming and esports segment through four key acquisitions.
The company, known for its high-quality PC gaming products, primarily high-performance memory, mechanical keyboards, mice, and PC cases, has broadened its product base to leverage the meteoric rise in popularity and significance of esports through recent acquisitions.
It recently acquired Gamer Sensei, the world’s biggest esports coaching platform. Other notable acquisitions include, EpocCam, Elgato Gaming and Scuf Gaming.
EpocCam sells software that lets users convert their smartphones into HD streaming cameras, while Elgato is a leading distributor of webcams, audio equipment, and streaming peripherals such as green screens – three of the most helpful tools for broadcasters on services like Twitch, Mixer and YouTube. Scuf Gaming makes a very popular line of high-end e-sports controllers.
Corsair has combined these streaming products with its own gaming PC solutions to build a one-stop-shop for streamers across the country. All of these acquisitions have given Corsair a more solid foothold in the booming esports and streaming industry, placing it at the heart of the competitive gaming boom.
Competitive and committed gamers only account for 18% of the total gamer population, but their share of spending in the PC gaming and streaming markets is over 80%.
With a high number of people jumping onto the streaming and esports bandwagon, there is all likelihood that more casual gamers will increase their spending, in the process directly benefitting companies like Corsair.
There are almost 10 million active Twitch channels right now, a figure which could be of great interest to Corsair. It is no coincidence that the stupendous growth in channels has been integral to Corsair’s highly impressive 83% YoY growth in gamer and creator peripheral sales.
Video games with increasingly life-like visuals have enhanced the viewing and playing experience. Professional gamers, as such, cannot afford to let average quality hardware come in way of competing against the best players. As streaming and esports continue expanding, the need for sophisticated hardware for the best playing experience will continue to increase Corsair’s Revenue per User (RPU).
Surging Market Dominance
The company, as per its latest reports, enjoys the top position in high performance memory (54% market share), power supply units (42% market share), cases (18% market share), and cooling solutions (53% market share) which, by the way, are all core products for Corsair.
And its string of recent acquisitions has made it number two in keyboards, streaming peripherals, and performance controllers.
Corsair Financial Performance Is Impressive
Corsair Gaming had an incredible fiscal year 2020, as the entire gaming sector tremendously benefitted from the Covid-induced lockdowns. The fourth-quarter revenue for the company was $556.30 million, a jump of 70.4 % in comparison to the same period last year.
Revenue for the full year was $1.7 billion, an increase of 55% YoY. The company reported $0.53 earnings per share for the quarter, in comparison to $0.21 EPS it posted during the same period last year, the company posted.
Gross profits increased by 108% to $465 million in 2020, and gross margins increased by almost 700 basis points to 27.3%. And, as for 2021, net revenue is estimated to be around $2 billion, while operating income is expected to increase 50% to reach $220 million.
The company also said it would be selling even more video game peripherals, and the numbers would have been even better in 2020 had it not been constrained by supply chain issues.
With explosive growth being witnessed in the gaming industry, it is expected that Corsair Gaming can handily beat consensus estimates for the year 2021.
And, to top it all, Corsair Gaming is extremely cheap. Corsair, at $33.50, is trading at a P/S of 1.8 and a P/E of 29.4. Coming off of 55% revenue growth and projecting 50% operating income next year, Corsair offers incredible value at these prices.
To sum it up, Corsair is a profitable, fast-growing dominant player in the gaming market today, with plenty of growth opportunities for the next decade.
The astronomical rise and popularity of esports and streaming are expected to be the tailwinds that will drive up the company’s revenue and profitability in coming years. Investors should specially pay attention to Corsair’s gamer and creator peripherals, as these are projected to be the company’s engine of growth in years to come.
All in all, the phenomenal rise of esports over the last couple of decades, Corsair’s highly attractive gross profit margin potential, and limited competition in the high-end computer peripheral industry, makes Corsair a compelling investment idea, more so for investors bullish on the future of gaming.
The Bear Case for Corsair Gaming
Corsair had an unbelievable fiscal year 2020, with the entire gaming sector exploding due to Covid-19 lockdowns. But no investment comes without its fair share of risks. Key investment risks for investors as far as Corsair Gaming is concerned are as following:
- Closest competitors such as Razor, Logitech and Microsoft eating into Corsair’s market share.
- The global cloud computing market size is expected to grow from $ 272.0 billion in 2018 to $ 623.3 billion by 2023. Increased adoption of cloud gaming could lead to a depressed demand for high-performance gaming PCs, thus hurting Corsair.
- A large amount of Corsair’s gaming PC components, hardware and peripherals are manufactured in Asia. This presents a significant risk as Covid-19 outbreaks, labor problems and geopolitical instability could severely impact Corsair’s supply chain in the future.
Let’s discuss these points in some detail and find out how much of a threat they possess to Corsair’s present and future growth.
Regarding the first point, none of Corsair’s closest competitors are involved in both the gaming peripheral and PC component markets. Corsair’s diversity, as such, gives it competitive advantage in the marketplace.
Corsair is a clear market leader in the gaming PC components market, gaming computer cases, cooling solutions, PSUs, and high-performance memory. Experts believe this trend is likely to continue in the near future.
With respect to the second point, cloud gaming, no doubt, is growing at a quick pace, but there’s little evidence to suggest that it will eat into the demand for high-performance equipment. So, here, as well, Corsair has little to worry about.
And, for the last point, it is to be noted that majority of Corsair’s equipment is manufactured in Asia. This makes it susceptible to both systematic and unsystematic risk. In fact, management lamented in its latest earning report that the numbers would have been much better but for supply constraints last year that actually impacted the company’s total sales.
As for now, these risks are unlikely to impact Corsair in a major way. Corsair is a profitable, fast-growing gaming company with lucrative growth prospects.
Corsair Gaming Stock Price Forecast
According to analysts that have issued a 1-year CRSR price target, the forecasts range from $24.00 to $55.00. On average, they expect Corsair Gaming’s stock price to reach $45.11 in the next year.
This suggests a possible upside of 33.2% from the stock’s current price.
Is Corsair Gaming Stock A Buy?
Corsair Gaming is one of the world’s leading providers of high-performance gaming and streaming products. The company provides high-quality gears, components, and software, including mechanical keyboards, precision gaming mice, wireless headsets and premium PC components to name a few.
Gaming analysts believe that Corsair will maintain its high-profile revenue growth and profitability in the foreseeable future because of the following reasons:
- The company will continue to benefit from the rising popularity of streaming and esports.
- Corsair faces limited competition with majority of its competitors lacking the technical know-how and expertise possessed by Corsair.
- Corsair’s current valuation is highly reasonable.
- Gaming popularity is here to stay.
The global gaming market is currently worth more than $150 billion, and the global esports and games streaming industry is one of the fastest growing sub-segments in the global gaming sector.
The global esports and games streaming industry is poised to grow by over 70 per cent in the next four years, reaching $3.5 billion by 2025.
eSports is the live streaming of games, often featuring professional gamers. As gaming and esports get more ingrained into people’s lives, Corsair is expected to reap rich dividend over the long term as gamers seek more sophisticated computer components and peripherals.
Also, it is anticipated that there will be over a billion eSports and games viewers by 2025, representing 1 in 9 of the global population. With growth accelerating, both in terms of audience and revenues, an increasing number of people are taking up gaming seriously, leading to a new breed of serious or committed gamers.
How Corsair Benefits From Market Growth
It is to be noted that the more committed and serious gamers are key to Corsair’s future growth, as this category is likely to splurge more on high-end gaming components and peripherals. And the good news for Corsair is that there is a huge room for expansion.
As per reports, an average American spent about $2,500 on entertainment, while spending around $205 dollars on gaming and gaming equipment.
This shows that the gaming peripherals, accessories, and component industry still has a high total addressable market and plenty of opportunities for rapid expansion.
Corsair Valuation & Financials
Corsair’s valuation is highly attractive at current levels. Corsair currently has a forward P/E of about 21.63, which is highly reasonable given Corsair’s high growth potential.
Corsair also has a somewhat healthy balance sheet for a growth company with 129.5 million dollars in cash and cash equivalents.
Corsair, in all likelihood, will continue with its astounding growth story as esports grow in popularity and keep generating tremendous amount of revenue.
Also, reports show that an increasing number of viewers and participants have a high income, a full-time job and are much more likely to spend big on the latest hardware devices, including gaming peripherals, thereby directly benefitting Corsair.
Moreover, lack of serious competition means Corsair can continue with its fairytale growth story and keep increasing its profit margin.
Corsair Gaming Stock Forecast Conclusion
Thanks to the pandemic, sales of gaming PCs (personal computers), video gaming hardware, and peripherals shot through the roof, hugely boosting revenue of companies like Corsair Gaming.
Corsair’s numbers exceeded expectations as revenue and adjusted earnings soared over the prior-year period. What’s more, the company issued a solid forecast for this year that ran contrary to analysts’ expectations of a slowdown, and said the numbers would have been higher had it not been plagued by supply chain issues.
Corsair reported EPS of $ 0.45 on sales of $556.3 million. Corsair said it expects full-year 2021 revenue to be in the range of $1.8 billion to $1.95 billion, ahead of analysts’ expectations of revenue of $1.71 billion.
However, shares surprisingly fell after the results were announced. Analysts believe that for any highflying video game stocks amid the Covid-19 pandemic, anything short of a blowout is not easily digested by the investors.
A dip in share price though is a good thing for savvy investors bullish on the fast-growing video gaming hardware market.
Corsair Gaming Has Lots of Growth Ahead
Some investors fear the opening up of the economy and easing of lockdowns could lead to the gaming industry losing some steam.
There’s no doubt that people took to video games in large numbers to fight boredom while confined to their homes. The same was reflected in Corsair Gaming’s revenue, which jumped 55% in 2020 to $1.7 billion, as increased gaming led to massive demand for gaming hardware and peripherals.
However, analysts were expecting the gaming industry to lose momentum in 2021 in the absence of a novel coronavirus-like catalyst.
While it is true that a record number of people stayed home in 2020 and turned towards gaming to keep themselves entertained, Corsair’s strong guidance has put any doubts of a slowdown in 2021 to rest. Corsair and the gaming industry are unlikely to be significantly damaged by reopening of the economy over the long term.
Gaming was an already popular trend before the Covid-19 pandemic, and the pandemic just happened to add further impetus to it. More people took to gaming during the pandemic, which can potentially result in new future gamers and Corsair’s customers.
Corsair expects revenue between $1.8 billion and $1.95 billion this year, which may not be as stellar as the one witnessed in the year just gone by, but over the long term, the trend is on Corsair’s side.
The drop in Corsair’s growth rate this year may have spooked investors, but the company is working hard to remove the supply chain issues, which could lead to better performance. Corsair says that it has started catching up with demand by manufacturing and shipping more products, which may result in Corsair exceeding its revenue forecast for 2021.
The demand for Corsair’s products remains strong as the maker of high-performance gaming components and peripherals is riding the coattails of the surging popularity of esports and game streaming.
A report by Jon Peddie Research shows that PC gaming hardware sales, worth $40 billion last year, is expected to reach $74 billion by 2024. Also, Corsair estimates that, out of 100 million PC gamers in the US, hardly 10 to 15% are in possession of gaming gears, which means the company still has a very huge market to tap into.
Corsair, in order to keep up with the rising demand for gaming, recently launched two new prebuilt gaming systems, the ONE a200 and the ONE i200. It is expected that these gaming PCs will do brisk business because there is acute shortage of graphics cards and other components currently in the market. High-end graphic cards, for the most part, is out of stock, which has led to rampant black marketing.
Prebuilt, branded systems such as the ones Corsair has recently introduced accounts for over 60% of the overall gaming PC market, which means the recent introduction of two gaming systems will further augment Corsair’s revenue.
The new systems, attractively priced, will allow gamers to save on the time, effort, and extra money required to assemble a PC on their own. With GPU supply shortage likely to continue for some more time, sales of prebuilt PCs could be stronger than expected.
This could be extremely good news for Corsair’s already booming gaming components and systems business, which registered 45% revenue growth to reach $1.16 billion in 2020, generating 2020 to close to 70% of the company’s top line.
All in all, Corsair, with its highly attractive valuation, huge market opportunity and limited competition, is truly living up to its billings as a growth stock. This makes it an ideal bet for investors looking to add a video gaming stock to their portfolios.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.