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Corsair CEO on gaming industry & IPO debut

Corsair CEO Andy Paul joins Yahoo Finance’s Zack Guzman to discuss Corsair’s IPO and how its strong market share in items like keyboards, headsets makes it a leader in high-performance gear for gamers and streamers.

Video Transcript

ZACK GUZMAN: We saw the debut of yet another company, this IPO train continues to roll on. And today it was video game hardware company Corsair making its debut, opening to trade at $15.12 a share after its $238 million IPO price shares at $17 a share, so open for trading below that.

But interestingly, in its S-1 ahead of the IPO, the company listed some potential revenue drivers tied to the coronavirus pandemic and the way that more people are staying at home playing video games. And the company obviously, it makes quite a few products tied to the gaming space, not just the hardware and computers tied to that, but also headsets, keyboards, what have you. So how is that going to play out here in the rest of 2020?

Here to chat that with us is the CEO of Corsair Andy Paul. And Andy, thanks for joining us. I guess, you know, you never know how these debuts are going to go. And it's obviously just day one here.

But talk to me about what you see coming forward. Because I was just reading through your S-1, and notably, you guys saw a pretty significant jump in the first half of the year. So talk to me about how much of a boost, you know, the new, I guess, lockdown measures may have been for you guys.

ANDY PAUL: Well, it's been a great year so far, and we've seen this before, actually. Anytime there's an impetus for people to start playing games more, whether it be a great game, whether it be great new hardware coming onto the market, or, in this case, whether it be people at home more, it's just bringing more and more people into the gaming world. And we now-- the estimates now are 2.6 billion people actively playing games around the world, of which 500 million of those are on PC game platforms.

So it's a very exciting time. And there's no question that as people spend more time at home and less time out in restaurants and bars, then they get more interested in gaming. But what we do see, and this is what, I think, investors were finding interesting as we talked to them, was that people that get into gaming and start building up their desktop and buying gear tend to continue to spend money over several years. In fact, most people I know that are avid gamers, you know, have been doing this for 20 years and don't stop spending. So it's not sort of a one-time spend and then-- and then we're done.

ZACK GUZMAN: Yeah, and the financials too, though, that's the interesting thing because you guys swung from a net loss here of about $16 million in the first six months in 2019 to what you guys reported here, about $23.8 million in the first six months of this year. Interestingly, though, margins are still pretty consistently around that 20%, although you guys improved them to 26.7% gross margins here. But talk to me about how many of these components you can actually, I guess, produce some pricing pressure on your manufacturers here when you're selling these things. Because as I understand it, you do use third-party materials here to make your products? So how does that change here? And how might margins maybe improve further down the road?

ANDY PAUL: Yeah, well, funnily enough, you know, we don't anticipate increasing margins by putting pressure on our suppliers. In fact, it's quite the opposite. The way that our prices and margins go up is by shipping, and manufacturing, and designing, you know, higher-featured products. And so if you look at what's actually happened over the last few years, some of the product categories we've gotten into, those are much higher-margin product categories with a lot more content, a lot more software content.

And as they grow and the mix of products shifts from, you know, more standard components to, you know, to higher software-filled products, you know, the margin mix continues to drive up. So that's really the biggest thing that's happening at the moment. And I suppose the latest example of that is with the acquisition we did a couple of years ago with Elgato that makes streaming gear.

Streaming, live game streaming is a hugely popular pastime now. It's really the next big thing. And the products we make for streamers is growing much quicker than average and is much higher margin than the rest of our portfolio.

ZACK GUZMAN: Yeah, I guess the other question here for investors maybe looking at the gaming space for the first time, obviously, there's different ways to play it. You can look at maybe, if you buy into the idea that streamers will continue to be a big theme in gaming culture, you could go that route, Amazon's Twitch, maybe that route, or you can go, you know, the game makers themselves, Activision Blizzard, some of these big names we're talking about here. But when you think about where gaming's shifting, you guys noted potential risks coming from cloud computing and how cloud gaming might impact things as well if people shift their demand here for hardware products or PCs beyond this. I mean, talk to me about that and how maybe a shift towards cloud gaming might impact things at Corsair.

ANDY PAUL: Sure. Well, look, we're required to put all sorts of risks into the S-1, as you know. Cloud gaming, we actually see as being very similar trend to mobile gaming. In other words, you know, most people in the world that are gamers are playing games on smartphones having a great experience, and we expect people to do the same with cloud gaming.

So really, it's more of an entry-level, low-cost way of playing games. You're never going to be able to get the same immersive experience or performance playing games in the cloud compared to playing them on a local PC with graphics processors right next to you. So generally, whatever the performance uplifts that get made going from 4G to 5G, we're going to see continuous improvements in the graphics performance that you get from a gaming PC.

And you've probably seen recently Nvidia launch their new Ampere line of cards with graphics performance of 50% or more higher than the previous-- previous generation. So this is what's fun about people playing on PC platforms, they continue to evolve and get better and better. So I think, actually, what game-- cloud gaming does for us is just bring more people into the gaming space, which is good for everybody.

ZACK GUZMAN: And what's impressive, the revenue growth that you see last year topping the $1 billion net revenue mark should be pointed out. And as we opened with here, the shrinking net losses swinging to profitability there the first six months of the year. And we'll see how this shift to gaming continues to play out. Andy Paul, the CEO of Corsair, always appreciate having these chats with new companies. Good luck from here, my friend.

ANDY PAUL: OK, and thanks, and nice to be here.