Interesting acquisitions, rapid growth, bullish investor outlooks - what's the catch?
After posting the recent due diligence Opinion on Palantir, I got a comment that asked whether I could do one on Corsair Gaming! Quite coincidentally, I was looking at Corsair for a while, since they've been doing relatively well over the course of the last year. In this Opinion, I'll be systematically going over what Corsair does, their competitors, risks they may face and why some people might see them as a good buy.
While gaming / e-sports has been popular for the last decade or so, 2020 saw the breakout periods of many successful gaming companies. As for Corsair, they just went public this year in September, at a price of $17.25 / share. It peaked at about $51 and now, it's pulled back to $33.50.
Anything not cited in this article or linked to another source is my opinion, so please do your own due diligence. If you're not interested in looking through company fundamentals, please think twice before putting your hard earned money in a company.
As for myself, I am not vested in Corsair. This article is based off my personal due diligence notes, edited to add some additional details.
If you're interested in asking specific questions or anything related to this article, please don't hesitate to reach out to me_ _here! I'll reply within a day.
Corsair is best known as a hardware and computer peripherals (keyboards, mice etc) company. But that may change soon, with their recent acquisitions and partnerships.
2020 has been a great year for Corsair, in terms of product development and partnerships. Notably, Corsair had acquired Gamer Sensei, the "largest esports coaching platform with more than 100,000 gamers coached so far". In their November 2020 press release, Corsair stated: "With the addition of Gamer Sensei to the CORSAIR family, and our recent partnership with Pipeline, we’re providing our customers with the coaching and training they need to succeed, whether they’re gaming, streaming, or both.”
Moreover, on the product side, Corsair acquired Kinoni's EpocCam, "a program that transforms Apple's iPhone and iPad into a feature-rich wireless webcam that can be used to chat, collaborate, stream, and record video".
These partnerships, product innovation and acquisitions signals Corsair's eagerness to shift into streaming and e-sports coaching. To compete with other market incumbents, Corsair is evidently not competing on hardware alone, but also seeking to find a comprehensive suite of gamer solutions.
Based off their Q3 presentation highlights below, Corsair has had a very successful year. Looking at the 353.6% increase in their operating income, it's safe to say that Corsair is on the track for rapid expansion. Their net income has also shot up by a whopping 2293.5%.
With regards to institutional ownership, it currently stands at 91%. 96.58% of their float is held by insiders and institutions. They have 60 institutions holding shares, who include Blackrock, JPM and Citadel.
Currently, Razer, GIGABYTE and Logitech are positioned as Corsair's main competitors. Razer and GIGABYTE trade on the HKE and TPE respectively, so I'll just use Logitech and Corsair for the sake of comparison simplicity.
For the last quarter, Logitech's financial results went something like this:
Net Revenue: + 73%
Net Income: + 276%
Gross Profit: + 108%
But Corsair's went a little like this:
Net Revenue: + 60.7%
Net Income: + 2293.5%
Gross Profit: + 112.4%
Corsair's products are on the higher end of the price spectrum and their components/peripherals are seen as premium. Logitech is seen as pretty affordable and also popular for non-gamers. This leaves a few options for Corsair:
They can adopt Apple's approach and corner the premium market. They're already known for high-quality products, so they have an established reputation among gamers who would be willing to splurge.
They can expand their product offerings, through internal development or acquisitions of "lower-market" brands. This downmarket diversification can help them access younger / casual gamers and possibly move them up to the upmarket offerings.
Corsair has also stated that they aren't keen on creating new products for tablet and mobile gaming. According to this, Newzoo predicts that "PC gaming will account for 23% of the market revenue, console gaming comes in at 31%, and mobile and tablet are at a combined 46%. By 2022, mobile and tablet gaming will account for close to 50% of the overall gaming market." This lack of interest in creating specialised offerings means that they need to get better at what they're currently doing, and/or venture elsewhere.
A possible long term risk for Corsair I see in the future could be cloud gaming. Though cloud gaming is still nascent, it translates into reduced demand for processing bits (a.k.a what Corsair specialises in) since games can be kept on remote servers. Corsair themselves acknowledged this risk in their filing, which also explains their recent diversification efforts. They seem aware of the risks and are taking steps to address them, so I'd consider this a decent risk mitigation effort.
Based off their recent acquisitions, I believe that 2021 will be when we start seeing Corsair focusing more on e-sports streaming and training, as opposed to just product development on the hardware side. Personally, I'm curious about how much return they can get from these acquisitions, since they're one of the first more prolific hardware companies to fully venture into this scene. If we were to compare Logitech to Corsair, Logitech has acquired a streaming service as well - Streamlabs. However, the other acquisitions in their suite seem more focused on expanding their current product offerings. On Razer's end, their past acquisitions don't seem to be gaming-specific and the OUYA acquisition veers more on the acqui-hiring side.
This may seem like a stretch, but 5-10 years from now, I wouldn't be totally surprised to see Corsair being better known as a e-sports training and streaming company. Nintendo started out as the largest card manufacturer in Japan, before evolving into what we know today.
Their next earnings date is February 9, which I expect to be strong as well. They beat their previous earnings ratio target by 0.26. Looking at their acquisition of the world's largest e-sports coaching platform and foray into streaming also has me feeling bullish with regards to this stock. I would err towards buying this stock, so I'll be keeping my eye on this for now.
Thanks for reading and do comment below what you think!