Fifty GPUs And GTA Six Will Ignite Gaming And Racing

Key Takeaways

• New product launches and strategic acquisitions are projected to drive revenue growth and improve EBITDA, especially through expanding gaming and sim racing markets.
  
• Strategic partnerships and debt reduction efforts are expected to boost brand awareness, improve margins, and enhance financial health.
  
• Declining revenue and profitability, coupled with high inventory from the Fanatec acquisition, highlight financial and operational challenges for Corsair Gaming.

Catalysts

Designs and sells gaming and streaming peripherals, components, and systems in Europe, the Middle East, North Africa, North America, Latin America, and the Asia Pacific.

• The launch of the new 50 Series Black Hall GPUs and the anticipated launch of GTA 6 are expected to drive increased demand for high-end gaming components, benefiting Corsair's revenue through increased sales of GPUs, power supplies, and cooling components.
  
• The acquisition and integration of the Fanatec Sim Racing business are projected to enhance Corsair's revenue and EBITDA, as the company capitalizes on the growing interest in sim racing and offers comprehensive racing solutions.
  
• Expansion of the Elgato product line, including introducing AI features, is anticipated to spur revenue growth and possibly enhance net margins due to higher value-added products in the peripherals market.
  
• Strategic partnerships with major companies like Apple and Activision are likely to increase brand awareness and sales volumes, positively impacting Corsair's revenue stream.
  
• Expected improvements in gross margins, especially within the Gaming and Creator Peripherals segment, combined with disciplined debt reduction strategies, are likely to enhance overall earnings and financial health.

Corsair Gaming Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corsair Gaming's revenue will grow by 10.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.5% today to 2.9% in 3 years time.
• Analysts expect earnings to reach $52.4 million (and earnings per share of $0.48) by about May 2028, up from $-99.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $60.8 million in earnings, and the most bearish expecting $44.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.4x on those 2028 earnings, up from -7.5x today. This future PE is greater than the current PE for the US Tech industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.63%, as per the Simply Wall St company report.

Corsair Gaming Future Earnings Per Share Growth

Risks

• Corsair's full year 2024 net revenue declined from $1,459.9 million in 2023 to $1,316.4 million, potentially reflecting challenges in maintaining or growing revenue.
  
• The Gaming Components and Systems segment saw a decline in net revenue and gross profit compared to the previous year, indicating pressure on earnings from this core area.
  
• Fourth quarter net income attributable to shareholders significantly decreased from $6.2 million in Q4 2023 to $1.3 million in Q4 2024, suggesting potential issues impacting profitability.
  
• The adjusted EBITDA for the full year 2024 was $54.7 million compared to $95.1 million in 2023, pointing to reduced profitability and efficiency concerns.
  
• Inventory levels increased due to the Fanatec acquisition, which could impact cash flow and net margins if not effectively managed.

Valuation

• The analysts have a consensus price target of $12.0 for Corsair Gaming based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $52.4 million, and it would be trading on a PE ratio of 31.4x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $7.08, the analyst price target of $12.0 is 41.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.