E Turtle Beach With A Turnaround In 2020?

Player-base of online games

A decrease of player-bases of famous online games like DOTA 2 and PUBG will also lead to a lower interest in gaming headsets. While most of the biggest games are still reporting strong numbers, this is not certain going forward.

Saturated Market

Turtle Beach has a market share of over 40% for the tenth consecutive year in the North American console gaming headset market. Furthermore, this market is expected to grow by a CAGR of 6.8% to 2026, there are several competitors in the market. Some examples are Sennheiser, SteelSeries, Logitech, Razer. All of these competitors offer products at a similar price point, which can match the quality of Turtle Beach products.

Declining market share of console and PC gaming

(Click on image to enlarge)

Source: wepc.com

Smartphone & Smartwatch gaming continues to take market share of Console and PC gaming. Going forward this trend will most likely continue because Smartphones enable more people to enter into gaming. It is fairly easy to find a few minutes in break times or in between meetings to relax a little bit by playing games on the phone. This convenience attracts a specific target group, which might not have enough time for console/PC gaming.

These risks would lead to a continued down-turn for Turtle Beach and could even make its business redundant. From personal experience, I know that Turtle Beach products are not superior over its rival’s products regarding technical aspects. However, the price of their headphones is rather low and the current stock price makes Turtle Beach an interesting investment.

Conclusion

In the short-term HEAR does not seem very attractive, because it is still in a down-trend. But due to its high fair value, I expect the stock to recover over the next years. Caused by the small market-capitalization and high short-interest the stock might also continue to be volatile, but I like the solid balance sheet. They have no long-term debt and will benefit from the growth of online gaming. For patient investors, this stock offers a great risk-reward ratio. I will buy (HEAR) in tranches to be able to average down my cost basis and to not get hit that hard by a further stock decrease.

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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!