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Corsair Gaming Inc. ( NASDAQ:CRSR ): Risks, Market Opportunity and Forecasts - Fundamental Analysis

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This article was originally published on Simply Wall St News

Corsair Gaming, Inc. ( NASDAQ:CRSR ) is a leading global developer and manufacturer of high-performance gear and technology for gamers, content creators, and PC enthusiasts.

Corsair groups products into two categories:

  • Gamer and creator peripherals

  • Gaming components and systems

Corsair Product Portfolio
Corsair Product Portfolio

Corsair ships to more than 75 countries, and their gear is sold to retailers including Amazon ( NASDAQ:AMZN ), Best Buy ( NYSE:BBY ), JD.com ( NASDAQ:JD ), MediaMarkt and Walmart ( NYSE:WMT ).

In 2020, sales to the Americas, EMEA and Asia Pacific represented 45.5%, 36.7% and 17.8%, respectively. A global distribution gives opportunities for growth as well as exposure to the risks of international markets. A possible downside is that emerging markets may enact policies that favor domestic manufacturers and engage in product replication with a lower margin.

Compared to the average non-Corsair product, Corsair computer cases, cooling solutions, PSUs and high-performance memory commanded price premiums of 29%, 54%, 31% and 4% respectively. This positions Corsair as a premium brand, but as competition pressures the gaming market, Corsair may see these prices converge to fair value. Unless they build up the brand name enough to give them long-term pricing power.

In the gaming peripherals market, Corsair estimates a U.S. market share of 15.5% in December 2020 on a trailing twelve-month basis, according to NPD Group. The company also deems itself a clear market leader in the gaming PC components market. According to NPD Group, the U.S. market share in December 2020 rose to 40.7%

Market Capacity

There were an estimated 2.8 billion gamers worldwide across all devices spending more than $174 billion on games in 2020, an amount which has grown at a 12.2% compound annual growth rate over the last two years. Keep in mind that 2020 was an exceptional year due to the pandemic, and growth rates might be biased upwards .

Corsair aims to capture a growing share of the rapidly expanding gaming and streaming market, estimated at over $36 billion in 2019 by Jon Peddie Research.

While digging deeper, we found that the total US manufacturing orders for computers is around US$ 24b and has risen during the pandemic.

Manufacturers' New Orders
Manufacturers' New Orders

It is good to ask if these levels are sustainable, and if so, what is driving them? Is it gaming, streaming, or perhaps the new hybrid workplace? If the trend does not come from gaming related needs, then it may adversely impact Corsair’s future growth.

Key Risks

The biggest risk factors are competition, market saturation, and technological advancements which may render some products obsolete - such as wide adaptation of cloud computing which will allow cloud-based gaming at lower prices.

Revenue is tied to waves in gaming , and is dependent on innovation in gaming gear, streaming and socializing technology, and high-quality game releases that will stimulate gear purchasing. For investors closely following this market, it may be beneficial to ask, “Are there any games on the horizon that are going to really hit the mark?”.

Corsair sales seem to follow a seasonal pattern - that is why it is always better to evaluate financial performance on a trailing twelve-month basis. As a consequence of seasonality, revenue for the second calendar quarter is generally the lowest .

Corsair also has debt totaling US$294 m. The pandemic excess cash-flow allowed the company to pay off US$28 m, and is further committing to repay US$72 m more debt during 2021. This will significantly reduce fixed costs for the company and make it a less risky investment.

Analysts Estimates

Corsair defied analyst predictions to release its first-quarter results, which were ahead of market expectations. Corsair Gaming delivered a significant beat to revenue expectations, with sales hitting US$529m, some 17% above indicated.

We've gathered the most recent statutory analyst forecasts following these results.

earnings-and-revenue-growth
earnings-and-revenue-growth

Taking into account the latest results, the consensus forecast from Corsair Gaming's eight analysts is for revenues of US$2.07b in 2021, which would reflect a reasonable 7.4% improvement in sales compared to the last 12 months.

Additionally, the company is projected to grow by 10% on an annualized basis.

Compare this against the other companies in the industry, which are forecast to grow their revenues (in aggregate) 4.5% per year.

Wrap-Up, Pricing and Value

Analyst price targets are unchanged and hover around US$46.6 per share. Currently, the most bullish analyst values Corsair Gaming at US$55 per share, while the most bearish prices it at US$37 per share.

All these analyses conclude that the current market price diverges from the intrinsic value of the stock, and it is always beneficial to try and think as to why that may be!

In fact, there are just three possible scenarios:

  1. Analysts are wrong, and the market price is right

  2. The market price is wrong and analysts are right

  3. Both parties are wrong, but one is closer to the right price

What we are trying to illustrate, is that being right against the market is really hard, and we must have a good reasoning beforehand, if we think that there is an opportunity to exploit.

One possible hypothesis, is that the market is currently weary of post pandemic extrapolations for growth, and will wait to see the longer-term performance before increasing their position in Corsair.

With that in mind, we wouldn't be too quick to come to a conclusion on Corsair Gaming.

Long-term earnings power and a full overview of the company are much more important than next year's profits. If you are interested, you should see our latest analysis for Corsair Gaming .

Plus, you should also learn about the 1 warning sign we've spotted with Corsair Gaming .

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com