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Corsair Gaming moving past pandemic-driven ‘surge of gamers,’ CEO says

Corsair Gaming Founder & CEO Andy Paul sits down with Yahoo Finance Live to talk about the company's revenue beat, the supply chain shortage of graphics cards for gaming PCs, and the gaming industry outlook following several major acquisitions.

Video Transcript

JARED BLIKRE: Welcome back to Yahoo Finance Live. Microsoft looking to get ahead of regulatory concerns over its nearly $70 billion deal for Activision Blizzard takes a swipe at Apple at the same time. Yahoo Finance's Dan Howley has all the details. Dan.

DAN HOWLEY: --a statement that was released by Microsoft president Brad Smith today. And really, it lays out how the company is trying to, more or less, woo lawmakers over the ability for it to acquire Activision Blizzard. That's that $68.7 billion acquisition that they announced. And really, what they're trying to do is ensure that regulators, as well as lawmakers, recognize what it's doing as far as its App Store goes, and kind of ease their concerns as to this massive acquisition-- the largest, by the way, in Microsoft's history.

So in a statement, basically, what Brad Smith says is, we have developed these principles in part to address Microsoft's growing role and responsibility as we start to process-- start the process, excuse me, of seeking regulatory approval in capitals around the world of our acquisition of Activision Blizzard. And so basically, what he ticks off here is how Microsoft's own Microsoft Store-- that's the name of their App Store-- is different than the likes of Apple's App Store and Google's App Store.

By the way, Apple and Google make the majority of their money in their app stores through the sale of games and in-game items. And so specifically pointing out as far as the app stores go, Smith says that App Store policies and practices on mobile devices restrict what and how creators can offer games and what and how gamers can play them.

So really, what he's pointing to is the fact that Microsoft has an ongoing grievance with Apple with regards to its inability to use the Microsoft cloud streaming platform on iOS devices via the App Store. He also points to the fact that Microsoft is lowering the cost of fees that are charged to developers when there are in-game purchases.

It also goes into the fact that it's not going to self-preference itself in its own App Store, which is something that we've seen come out of legislation through Congress, basically trying to stop companies like Apple and Google-- Amazon from preferencing their own apps and own products in their own digital storefronts. Microsoft specifically says they're not going to be doing that.

And then directly to the Activision Blizzard issue, Microsoft says that it's going to kind of assuage gamers' fears, as well as regulators' fears, as to ensuring that it's going to allow rival Sony, as well as Nintendo, to continue to get access to Activision Blizzard games. That's something that was really talked about. "Call of Duty," one of Activision Blizzard's biggest properties, one of the biggest game properties in the world for that matter, was one of the most played games on Sony's PlayStation in 2021.

And so if Microsoft turned around and took that away once it was able to get a hold of Activision Blizzard, it would've been a big blow to Sony. But clearly, what they're saying here is they're going to continue to honor the contracts that exist and then extend that beyond that period. So really, a huge lineup of promises that Microsoft is making to ensure that it's able to get a hold of Activision Blizzard for that nearly $70 billion.

JARED BLIKRE: Yeah, and it's really interesting to think that it was about 30 years ago when the DOJ first started probing Microsoft for antitrust violations. That was three decades ago. Very great-- thank you for that report, Yahoo Finance's Dan Howley.

We want to keep it in the gaming space, and we're going to talk with the Corsair Gaming founder and CEO, Andy Paul. Andy, thank you for joining us here today. You just released your earnings. I see your stock is up about 3% right now. Your results beat Wall Street expectations-- excuse me. Adjusted EPS coming in at $0.35 versus the estimate of $0.25. Net revenue of $510 million versus the estimate of 495. Just go over some of the results here for the last quarter and year.

ANDY PAUL: Yeah, so we were pretty pleased with the results. It's obviously been a difficult time for I think investors and analysts to try and figure out what's happening as we come out of the pandemic and people start to go out and about and aren't stuck in a shelter at home. So we were pretty pleased with this result. We'd like to compare this with pre-pandemic Q4s, which would be Q4 '19. And in Q1, we'll be comparing our results with Q1 '20, again, before people went into shelter at home.

So when we look back at the last 24 months, we clearly saw that with gamers spending time at home and spending a lot more hours gaming, that clearly drove a surge in activity and for sure, drove a surge of gamers starting to buy our gear. And so now we're past that. The good thing is that when gamers buy gaming hardware, there's a pretty short refresh cycle. And within two or three years, they'll be back to buy better stuff as they get better at gaming. So that's the story. But yeah, we were pretty happy with this and happy with all the signs that it showed.

JARED BLIKRE: Yeah, and the Street was pretty positive on the results as well, although they are noting that some of the supply constraints are an issue with you. I have a Wedbush quote right here. Supply constraints continue to limit Corsair's ability to satisfy demand, particularly in components for do-it-yourself gaming computer builds, although they do expect the situation to improve throughout 2022. I think that's kind of in line with what you were saying. But any more details--

ANDY PAUL: That's right.

JARED BLIKRE: --on the supply chain front?

ANDY PAUL: Yeah, so it is a little bit complicated because most of the products that we sell, probably 2/3 of our revenue, are from components that gamers use to build their own gaming PCs. And that's been a trend for the last 20 years that the best gaming PC is one that you build yourself from components. Now the key component that goes into a gaming PC is a graphics card.

And those have been in very short supply. That's got very high semiconductor content, obviously, used by a lot of Ethereum miners. And so graphics cards have been 150% to 200% of MSRP last year. And obviously faced with that, when graphics cards are $1,000 or $2000, a lot of people prefer to wait. And so that's really been the biggest headwind from a revenue standpoint. We could have done a lot more revenue in our components business if graphics cards had been more available.

Now the supply chain issues other than that are more on an earnings, you know, basis than our revenue, because we do have increased costs. I think most people now know that the cost of a container to move from Asia to the US, which, a few years ago, used to be $3,000, is now $15,000 to $20,000. And so for items that are bulky or heavy, that is a big, big difference in cost. And so some of that gets passed on to consumers.

A lot of that we have to absorb ourselves. And our thinking is that that will naturally-- you know, that'll naturally resort back to normal, probably going to take most of this year. But we're already seeing signs that the costs of just moving things around the world is starting to get back not to normal yet, but certainly getting better than it was last year.

ALEXIS CHRISTOFOROUS: Hi, Andy, Alexis here. Good to see you on the show again. I want to ask you about consolidation, ongoing consolidation in the industry. Of course, the most recent deal between Microsoft and Activision for $69 billion. What does that mean, if anything, for your business if, say, for instance, Microsoft moved some of those Activision games exclusively onto the Xbox?

ANDY PAUL: Yeah, well, I don't think they're going to do that. That's not really their plans, right? I mean, the notion that Microsoft have is to, through Game Pass, have a subscription that you can play any game you want anywhere on any platform. That's really the end result. And I think that this Activision deal is really more geared towards mobile user expansion than anything else.

But a couple of things to think about, Alex. One is that our surveys show that we don't have gamers divided up into PC or console or phone. Most people play on all of those things. Most people that are PC gamers also own consoles. And of course, everyone owns a smartphone these days. So that's the first thing. Now I think that in terms of consolidation and M&A activity, as I think you know, we've done six or seven acquisitions in the last three years. And the majority of those have been very, very successful. Some of those have been incredibly successful.

Our first acquisition, actually, which was the Elgato content creator company, has done remarkably well. I mean, it's 4x of revenue compared to when we bought them. So that's really our biggest-- big contribution. And I think that what we're going to find is that in the world of gaming hardware, same thing happens with software, that size doesn't really matter. In order to get retail shelf space and awareness, you've got to be one of the big three or four players that are out there now.

And so we have a lot of $50 to $100 million revenue companies coming to us to see whether we can help them because our worldwide distribution of footprint is pretty massive now. You've got to remember, we have $2 billion--

ALEXIS CHRISTOFOROUS: Yeah, and speaking to that, I wanted to ask you a quick question on new products and new agreements. Because I know despite the headwinds last year, you were able to launch over 140 new products, and you recently signed a reseller agreement with Digital Motorsports. Just tell us briefly what that's going to mean for the business.

ANDY PAUL: Yeah, so I mean, that's been working on for a while. So one of the things that's emerging as an interesting game playing experience is Digital Motorsports or Sim racing. And the reason for that is that for car racing, you can get a really good experience in a simulator. And it's much cheaper than track time. And so I think we're going to see that as one of the biggest growth markets. Also a big potential for e-sports. As you probably already know, the Formula One already has an e-sports event that goes on in parallel with the track events.

ALEXIS CHRISTOFOROUS: All right, we're going to have to leave it there. Andy Paul, Corsair's founder and CEO, thanks so much for your time today.