Company Overview: Corsair Gaming, Inc. (NASDAQ: CRSR) is a primary global developer and producer of high-performance gaming, content creation, and PC enthusiast hardware and technology. Gaming Components and Systems and Gamer and Creator Peripherals are the two segments in which the company operates. The sale of gamer and creator peripherals, gaming components and systems to retailers, including online retailers, gamers, and distributors worldwide, accounts for a significant portion of its net revenue.

CRSR Details

Key Takeaways from FY21 (ended December 31, 2021)

• Boost in Revenues: Due to overall expansion in all segments, the company's net revenues in FY21 were USD 1.90 billion, up 11.85% year over year from USD 1.70 billion in FY20.
• Flat Bottomline: The company reported a net income of USD 100.96 million in FY21, compared to USD 103.22 million in FY20, representing a diluted EPS of USD 1.01.

Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• CRSR released the new CORSAIR iCUE 5000T RGB PC case and CORSAIR iCUE LC100 Case Accent Lighting Panels on February 15, 2022. The company also launched K70 RGB PRO Mechanical Gaming Keyboard, on February 10, 2022, to help gamers get the most out of their setup.
• ESE Entertainment Inc., a leading gaming and esports firm, announced on February 07, 2022, that its subsidiary, Digital Motorsports, has formed a reseller partnership with CRSR to deliver a wide selection of premium gaming peripherals, streaming gears, and ambient lighting solutions.
• On January 5, 2022, CRSR stated that it had purchased a 51% ownership in iDisplay Technology (iDisplay), a global leader in electrical development and design.
• CRSR unveiled the new CORSAIR ONE i300 series of tiny desktop PCs on January 4, 2022, the most unique in the award-winning CORSAIR ONE family. The latest 12th Gen Intel Core processors are used in this powerful machine.

Balance Sheet & Liquidity Position

• Decline in Debt Profile: As of December 31, 2021, the company has an outstanding debt of USD 247.65 million vs. USD 321.39 million as of December 31, 2020.
• Progress in Investing Activity: Net cash used in investing activities climbed to USD 20.54 million for twelve months ended December 31, 2021, up from USD 10.28 million for the same period in the previous year. This adjustment was caused due to USD 4.85 million used in business acquisitions and capital expenditures of USD 10.97 million.
• Recorded Retained Earnings: As of December 31, 2021, the company reported its first retained earnings of USD 98.15 million, compared to an accumulated deficit of USD 2.81 million as of December 31, 2020.

Key Metrics: In FY21, CRSR's Net margins were 5.3%, slightly higher than the industry median of 3.3%. Its Debt/Equity ratio improved to 0.44x as of FY21, from 0.73x as of FY20. CRSR also reported the current ratio of 1.58x as of FY21 compared to the industry median of 9.2%.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 69.34% of the total shareholding, while the top 4 constitute the maximum holding. The EagleTree Capital, LP and The Vanguard Group, Inc., hold the maximum stake in the company at 57.43% and 3.48%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Dependence on Third Parties: To increase sales of its gears, CRSR relies on the launch and success of new third-party-developed computer hardware, particularly graphics processing units (GPUs) and Central processing units (CPUs) as well as sophisticated new video games. The company's financials and cash flows may be substantially harmed if freshly announced GPUs, CPUs, and complex video games are not successful or if the rate at which those products are introduced falls.
• Seasonal Risk: Due to lower sales following the fourth quarter holiday season and the decline in sales that typically occurs in anticipation of the introduction of enhanced GPUs, CPUs, and other computer hardware products, which usually occurs in the second calendar quarter and drives sales in the following two quarters, CRSR's total unit shipments have been lowest in the first and second calendar quarters. As a result, its total unit shipments are prone to seasonal swings, which could hurt its bottom line.
• Customer Concentration Risk: Sales to Amazon amounted to 24.6% and 25.1% of its net revenue in 2020 and 2019, respectively, and sales to its ten largest clients accounted for 52.7% and 51.6 % of its net revenue in the same period. As the company relies on its key customers, losing one or more could have a significant financial impact.

Outlook

• Looking ahead, CRSR forecasts FY22 revenues to be in the range of USD 1.9 to USD 2.1 billion, along with adjusted operating income to be in the range of USD 195 to USD 215 million.
• It Further anticipates FY22 adjusted EBITDA to be in the range of USD 205 to USD 225 million.
• CRSR expects to continue to face high freight costs and supply chain challenges this year but believes that these issues will subside as the year progresses.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: CRSR's stock price has corrected 26.46% in the past nine months. The stock is currently leaning towards the lower band of its 52-week range of USD 17.68 to USD 42.97. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering it's market dominance in the gaming gears industry, continuous decline in debt, and global market presence. We have taken peers like Western Digital Corp. (NASDAQ: WDC), Xerox Holdings Corp. (NASDAQ: XRX), and others. Considering the expansion in revenues, market supremacy, recently launched products, inorganic endeavors, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 22.96, up ~0.39%, as of February 28, 2022, 10:14 AM ET.

CRSR 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 for 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.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

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

Disclaimer

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