Company Overview: Based in Fremont, California, Corsair Gaming, Inc. (NASDAQ: CRSR) is engaged in providing and innovating high-performance gear for gamers as well as content creators. The company assists digital athletes, from casual gamers to dedicated specialists across PC or console platforms. The company is also involved in designing and selling high-performance gaming and streaming peripherals.

CRSR Details

CRSR Rides on Acquisition Synergies & New Product Launches:  Corsair Gaming, Inc. (NASDAQ: CRSR) is engaged in designing, marketing, and distributing gaming and streaming peripherals, components, and systems primarily in the US and internationally. The company remains on track to benefit from the higher requirements for gear upgrades with PC gaming interests and video streaming set-ups. Moreover, enhanced focus on new product introductions augurs well for the company. CRSR unveiled numerous high-performance products such as SCUF-branded H1 customizable wired gaming headset, haptic headset, wireless mouse, to name a few. The company remains well equipped to leverage its scale and operational capability to purchase and incorporate businesses into its portfolio.

A Quick Look at 1QFY21’s Key Results: During the quarter, revenues from the gamer and creator peripherals segment stood at $175.9 million, depicting a rise of 131.9% from the prior corresponding period. Net revenues from gaming components and systems increased by a whopping 51.9% and came in at $353.5 million. Adjusted operating income for the quarter skyrocketed ~221.4% on pcp and came in at $80.4 million. On the other hand, net income stood at $46.7 million, up from just $1.2 million reported in the year-ago quarter. The company’s total revenue and gross profit came in at $529.4 million and $160.3 million, respectively, in 1QFY21. This depicts a rise from $208.5 million of revenues and $78.6 million gross profit reported in 1QFY20. The company remains on track to deliver on its growth strategies through a diversified product portfolio and expanding geographic reach. The company remains well placed with its new products, such as the K65 mini RGB keyboard and Elgato’s new accessories. In 1QFY21, the company unveiled 29 new products and expects this trend of new product introduction to continue in FY21 & beyond.

Revenues & Gross Profit Highlights; Analysis by Kalkine Group

Acquisitions Remain Key Growth Catalyst: Since 2018, the company has completed six acquisitions. The company acquired Elgato in 2018, which aided the company to enter the streaming gear market. Further, in 2019, the company acquired Origin PC and SCUF Gaming, aiding the company to provide custom-built gaming PCs and strengthen its foothold in the console gear market. In 2020, the company acquired EpocCam to augment the Elgato streaming camera software offering. Lately, in February 2021, the company bought Visuals by Impulse to present innovative services to streamers who are exploring to professionalize their broadcast look. These acquisitions and expansion initiatives into new gear and services such as streaming accessories, gaming PC peripherals, as well as gaming PCs and laptops remain promising.

Decent Liquidity & Key Metrics: The company exited Q1FY21 with a total cash balance of ~$125.35 million, with net debt amounting to $294.25 million. At the end of the first quarter, the company reduced debt by an additional $28 million. Operating cash flow in 1QFY21 stood at $27.77 million, up from $2 million reported in 1QFY20.  In 1QFY21, the company’s EBITDA margin stood at 14.8%, higher than the industry median of 11.4%, indicating higher profitability. In the same time span, the net margin and operating margin of the company stood at 8.8% and 12.7%, higher than the industry median figure of 4.7% and 6.8%, respectively. During the quarter, the ROE of the company stood at 10.1% as compared to the industry median of 1.7%. In 1QFY21, debt to equity ratio of the company was 0.60x, lower than the previous quarter’s figure of 0.73x.

Profitability and Leverage Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form ~68.47% of the total shareholdings, while the top 4 constitutes the maximum holding. EagleTree Capital, LP and Paul (Andrew J.) are holding a maximum stake in the company at 58.77% and 2.80%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: On the flip side, disruptions in the supply chain due to the COVID-19 led virus outbreak, as well as increase in product development and freight costs, are likely to hurt margins, going forward. Further, pricing pressure continues to remain a major headwind for CRSR. Also, stiff competition from peers and integration risks add to the woes. Furthermore, rising investments in portfolio expansion and product developments are some other potential headwinds.

Outlook: The company remains on track to bolster its foothold in the emerging markets, thus proposing long-term opportunities. Additionally, strong adoption of the CRSR’s latest product launches augers well for the company’s performance. Owing to better-than-expected first-quarter results, acquisition synergies, and new product unveils, the company raised its FY21 outlook. For FY21, the company now expects revenues to be in the range of $1.9-$2.1 billion, up from the prior guidance of $1.8-$1.95 billion. Adjusted operating income in FY21 is now expected to be in the ambit of $235-$255 million (previous guidance $205-$220 million). Also, the company raised its adjusted EBITDA guidance from the earlier projection of $215-$230 million to be between $245-$265 million for FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~7.47%. The stock made a 52-week low and high of $14.09 and $51.37, respectively. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at some premium as compared to its peer’s median, considering acquisition from synergies, reduction in net debt position, robust product adoption, and raising FY21 outlook. For the purpose, we have taken peers like Century Casinos Inc (NASDAQ: CNTY), Western Digital Corporation (NASDAQ: WDC), to name a few. Considering decent 1QFY21 performance, acquisition synergies, robust product adoption, encouraging outlook, and valuation, we give a “Buy” recommendation on the stock at the closing price of $32.07, down by ~2.26% on 2 July 2021.  

CRSR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.