Corsair Gaming (CRSR): Intrinsic Valuation Analysis

Growth has underperformed value stocks over the last year due to inflation concerns. This has presented buying opportunities for those who want to add to their boomer portfolios for the long-term. I've decided to analyze companies that are down 50%+ from their 52-week highs.

Company Overview

Founded in 1994, Corsair Gaming Inc. (“Corsair” or the “Company”) provides gear for gamers and content creators. The Company designs and sells gaming and streaming peripherals, components and systems globally. Corsair operates through two segments: Gamer and Creator peripherals, and Gaming components and systems. To increase brand loyalty and repeat purchases, the Company has 2 proprietary software platforms: iCUE for Gamers and Elgato for Content Creators.

With many of Corsair’s products maintaining a number one US market share position, its brand, scale and global reach provide significant competitive advantages and allows the company to continue to capture a growing share of the rapidly expanding gaming and streaming market, estimated at over $36.0 billion in 2019.

Corsair leverages its scale and operations to acquire and integrate complementary brands and businesses into its portfolio, completing 6 acquisitions since 2018. Notable acquisitions include Elgato, Origin PC, SCUF Gaming, EpocCam, and Gamer Sensei.

Financial Snapshot & Commentary

Historical Revenue, EBITDA, and EBITDA Margins. 2021E – 2025E based on my own assumptions

Sales growth from 2018 – 2019 was 17.03%, and increased by 55.16% in 2020 due to increased demand, consumer sentiment, and better margins. Over the historical period, gross margins increased from 20.55% to 27.34% and EBITDA margins increased from 6.22% to 11.84%. Net Income and Earnings per share had a significant increase primarily due to strong top-line revenue growth, gross margin expansion in both segments, expanding EBITDA with low capital expenditures, an asset light business model, and investing to consolidate market leadership.

Q3 2021 Results

  • Corsair gained market share in almost every category through Q3 2021
  • Q3 Revenue was impacted by availability of reasonably priced GPUs which curtailed the demand for new PC builds and its components
  • Higher logistics costs including ocean and air freight had an impact on Q3 margins resulting in Gross Profit Margin of 25.9%
  • Gaming Components and Systems segment was impacted by GPU shortages which caused retail prices to surge to 150%+ of MSRP causing many customers to hold off building a performance gaming PC
  • Gamer and Creator Peripherals segment was impacted by IC shortages which caused Corsair’s premium high value products to be in limited supply. Additionally, Gross Profit Margins were impacted by increased logistics costs as well as some reduced sales in premium products
  • Company refinanced LT Debt, increased revolver size, and reduced the interest rate to LIBOR + 125.0 bps

Preliminary Risks

  • Corsair’s competitive position and success in the market depend upon the ability to build and maintain the strength of its brand among gaming enthusiasts
  • Long term success and company growth depend heavily on continuous development and improvement of existing and new products
  • The Company depends on the introduction and success of third-party high performance computer hardware including GPUs, CPUs, and sophisticated new video games to drive sales of its products
  • Industry is highly competitive and Corsair faces intense competition for market share
  • Sales depends on the growth of gaming, streaming, and eSports industries

DCF Valuation

Base Case DCF Valuation: $28.72 / share

Winter's Opinion Case DCF Valuation: $42.58 / share

Winter's Assumptions: Revenue Growth of 13.0% / 20.0% / 17.5% / 17.5% / 15.0% in projected years, EBITDA Margin 11.0% to 12.5% in projected years, Cost of Equity 10%, Terminal Value EBITDA Exit Multiple 10x (used EBITDA given CapEx estimates), $20.0MM growth capex per year, effective tax rate of 17.4%

  • Commentary: Conservative growth estimates based on management expectations and industry growth. Supply chain disruptions should begin to decrease throughout 2022 and its likely GPUs and other systems will have pent-up demand over the next few quarters. The company should see a bullwhip effect in sales growth and a decrease in operating costs moving forward. Increase in stay-at-home lifestyle due to Covid-19 should help sustain sales for years to come.

Public Comps Analysis

Competitors: Logitech, Turtle Beach, Dell Technologies, HP Inc.

Based on Multiples (EV/Revenue, EV/EBITDA, Price/Earnings), CRSR share price ranges from $17.40 to $32.30 with an average estimated share price of $23.31

Outlook and Final Thoughts

Based on my intrinsic valuation, I believe Corsair is valued at $32.95 (average est. share price of DCF/Comps). Corsair closed at $21.17 on 12.10.2021, representing a 55% discount to my valuation. I think that Corsair is undervalued and selling at a discount. Growth stocks will continue to face problems based on inflation risk until supply chain issues are resolved. The share price may remain volatile in the coming weeks or months. I think this is a good stock to own if you're a strong believer in the gaming industry for the long term and believe that Corsair can continue to capture market share through marketing efforts and quality products.

Sources: Corsair Gaming, Inc. 2020 10-K, 10-Qs, Investor Presentations, Company Website, Google Finance, Yahoo Finance, WeBull Desktop Platform

Disclaimer: All information is expressed as my own thoughts and opinions. Please do your own research and invest safely!


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