E Turtle Beach With A Turnaround In 2020?

Catalysts

I like to invest in gaming-related stocks because I know the potential those have. With the increasing buying power of millennials and gen z, the potential market for online gaming increases as well. When new online multiplayer games are launched, the demand for headsets inclines. 

Another important factor for headphone sales is the release of gaming consoles. People tend to upgrade their hardware when buying a new console. In the fourth quarter of 2020, Microsoft will start to sell its new XBOX series X and Sony its Playstation 5. It is unlikely that the release will be pushed back. Both companies are eager to stick to this time-plan, to take advantage of higher customer spending during the Christmas season. These launches will increase sales of Turtle Beach and it could lead to a blow-out Q4 in 2020. A second, more long-lasting catalysts are multiplayer online battle arena (MOBA) and massively multiplayer (MMO) games. These game categories are expected to grow with a CAGR of 14,52 % to 2021 and a headset is a prerequisite for sufficient communication in-game. 

Before the release of new online games, it is rather hard to tell, if the game will be a success. The first game of the DOTA series e.g. was only a fan-made modification of Warcraft III. League of Legends was released by Riot Games in autumn 2009, only three years after two students created the company. But I will take a guess on some future releases.

Following, I will mention a few promising games which will be released in 2020 and beyond:

New World

New World will be Amazons (AMZN) first big step into gaming. The game is categorized in the MMORPG (massively-multiplayer online role-playing game) genre, competing with World of Warcraft. The release is expected to be in May 2020.

Lord of the Rings MMO

Besides New World Amazon is developing a Lord of the Rings MMO in cooperation with Athlon Games. Even though no release date is set, the game could be a massive success due to Amazon financially backing the game and a nostalgic following of Lord of the Rings.

Magic: Legends – Perfect World Entertainment

Magic: Legends is related to the card game Magic and will be released in 2021 on Xbox, Playstation, and PC.

Project A – Riot Games

Project A is one of the first new multiplayer of Riot Games since the release of League of Legends. It will be an FPS (First-person shooter).

GTA VI

While it is not officially confirmed, there are several rumors about GTA IV.

There are a bunch of new releases in 2020 and beyond.

While this list may not be as strong as it was in the past, it still offers a row of potential big catalysts.

Analyst expectations

Despite the launch of the fifth-generation consoles analysts expect revenue of $227.74 million in 2020, this represents a decrease of roughly 5%.

(Click on image to enlarge)

Source: Yahoo Finance

In 2019 revenues decreased by approximately 18%, because there were no big catalysts. No new consoles got released and Fortnite was already two years old. Due to the launch of the new Xbox and Playstation, a further decline of 5% is unlikely. During 2019 Turtle Beach also acquired ROCCAT, to diversify its product portfolio with gaming mice and keyboards. This will also help to push revenues up. When looking at the past quarters, low revenue correlates with losses and high revenues with huge earnings, caused by lower average production costs. 

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Disclosure: I am long HEAR.

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Comments

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Barry Glassman 4 months ago Member's comment

I think gaming companies are going to go way up as more and more cities are quarantined due to #covid19. What else will people do besides play video games all day! That's exactly what happened in China.

Robert Templin 4 months ago Author's comment

A good friend of mine had the same thought, although I think it might have an influence, I expect it to be a minor one and more of a short-term nature.

Barry Glassman 4 months ago Member's comment

Depends on how long this whole thing lasts or how far reaching the quarantines are. In China, where millions of people have been quarantined for months, from what I read, the impact has been significant.

Adam Reynolds 4 months ago Member's comment

Great read. I remember the Warcraft series fondly!

Robert Templin 4 months ago Author's comment

Thank you. I appreciate it a lot!