In Focus: Corsair
AOC Live Streams
Last week U.S. Representative Alexandria Ocasio-Cortez took to Amazon's live streaming platform Twitch to promote voting and early voting. AOC put the word out via Twitter (TWTR) of her plans to stream her playing the game Among Us. In three hours of streaming and video game playing AOC's stream gained 435,000 viewers, the third highest individual stream by viewership in Twitch history.
This isn't a political piece, it's a friendly reminder that gaming isn't what it used to be. It's bigger than it ever was, and if you think it's just kids playing with computers you're missing out.
More to Come
The gaming industry has been evolving pretty rapidly over the last five years. The popularity of eSports has accelerated, which has caused video game streaming and viewing to grow rapidly. Amazon dominates the streaming arena with its Twitch platform. What Epic Games was able to do with Fortnite as a free-to-play game was a big boost to the industry. Google (GOOGL) kicked off the move to cloud gaming with it's Stadia platform. Microsoft (MSFT) and Amazon (AMZN) also announced plans to enter the cloud gaming space.Then there's Microsoft and Sony's (SNE) new consoles, the Xbox Series X and the Playstation 5 respectively, both due out this holiday season. There is also virtual and augmented reality. Facebook (FB) is trying to lead the charge there with it's Oculus platform
In addition to the evolution that was already taking place in the video industry, the coronavirus pandemic forced people to stay home and discover or rediscover gaming as entertainment, a way to pass time, and a way to stay connected. The VanEck Vectors Video Gaming and eSports ETF (ESPO) has gained 59% on the year, allowing investors to get
paid for gaming whether they can handle the sticks or not.
The Tailwind of eSports
The wind is at the sails of the gaming industry, which is likely why Corsair (CRSR) decided to go public this year. The company went from losing $8 million in 2019 to making a net income of $22 million Q2 2020.
What Corsair Does
Corsair is a do everything company within gaming. The company's flashy LED keyboards have been seen everywhere serious gamers discuss their gaming setups. Hardware needs, software needs, streaming needs, Corsair has got it.
The company's offerings are directed more towards the PC gamer, "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," stated company CEO Andy Paul. But as a public company with a fresh pile of cash the company could venture into creating accessories for console and cloud based gamers in the future.
There's No Sizzle
Investors may be overlooking Corsair because there's no sizzle, only steak. Where Electronic Arts (EA), Activision (ATVI), or Take-Two (TTWO) can gain investor's attention with new and anticipated game releases, Corsair doesn't have that luxury. Microsoft and Sony's new releases offered investors lots of sizzle to invest on, PC Gaming on the other hand offers a different type of sizzle for a different audience.
Gaming PCs are modular units that allow gamers to upgrade their units with the times. Many serious gamers build their PCs from the ground up, a move that has benefited Nvidia (NVDA) over the past several years. The ability to customize a gaming PC rig allows gamers to adapt their system to the times. Computer cases, cooling units, power supplies, memory, storage, and graphic cards can be swapped out and upgraded to keep a gaming PC performing at its best, and Corsair produces and sells most of these items for gamers looking to fine tune their PCs.
Corsair wants to be a high margin business, the luxury of PC gaming. When asked about pressuring manufactures to increase margins by Yahoo Finance, CEO Andy Paul responded,
"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..."
The vision that Paul for the company is more ideal than reality. Currently the profit margin for the company comes in at a measly 2.4%, which is way below other luxury brands. Apple's (AAPL) current profit margin comes in at ~21% and LVMH's (LVMUY) profit margin is ~10%.
The idea of a company being niche in the video game market may scare some investors away. But as an Apple and LVMH shareholder, I've come to understand that when it comes to what people can truly afford and what they want, what they want usually wins out. If Corsair and execute on the CEO's vision and produce products with higher margins, this could catapult the company from a $2 billion valuation to a $7 to $10 billion valuation.
Make Money Like a Pro Gamer
I don't think in 2020 anyone needs to validate gaming. AOC's streaming debut on Twitch was just an announcement for the few people out there that haven't come to grips that gaming, eSports, and streaming are legitimate ways to entertain, connect, and communicate. The industry will continue to grow from here, and Corsair may be a fairly reasonable way to play the industry.