Video game hardware and peripherals maker Corsair Gaming, Inc. (CRSR) reported its first-quarter earnings on May 7, 2024, which fell short of Wall Street’s expectations. Over the past year, CRSR's stock has taken a nosedive, plunging more than 40%. With consumers scaling back on physical goods purchases and opting for more outdoor activities, it's no surprise that a gaming hardware company like Corsair is feeling the pinch.
In the first quarter, the company reported revenue of $337.26 million, nearly 7% below the analysts’ estimate of $362.77 million. Similarly, its quarterly earnings of $0.09 per share fell short of the analyst's estimate of $0.14 per share. Moreover, the company has not been able to beat consensus EPS estimates over the last trailing three quarters, including the first quarter.
CRSR saw its net revenue drop to $337.30 million in Q1 2024, down from $417.30 million in the fourth quarter and $354 million in the first quarter last year. Despite this decline, the company's Gamer and Creator Peripherals segment showed resilience with a strong 20.3% year-over-year revenue growth. This growth was fueled by the success of new products, which not only gained market share but also expanded margins.
During the March quarter, CRSR's gross margin improved by 110 basis points to 25.7% from the last quarter, driven by a substantial 360 basis points sequential increase to 40.8% in the Gamer and Creator Peripherals segment. However, Corsair faced headwinds from increased freight costs due to disruptions in the Red Sea, necessitating additional air shipments.
Despite these logistical challenges, the company remains optimistic about its prospects for the year ahead, forecasting net revenue in the range of $1.45 billion to $1.60 billion. It also anticipates adjusted operating income between $92 million to $112 million and adjusted EBITDA between $105 million to $125 million, signaling a path toward recovery and growth.
Shares of CRSR have plunged 23.1% over the past six months and 26.5% year-to-date to close the last trading session at $10.37.
Let’s look at factors that could influence CRSR’s performance in the upcoming months.
Poor Financial Performance
For the first quarter that ended March 31, 2024, CRSR’s net revenue decreased 4.7% year-over-year to $337.26 million, with a 13.1% year-over-year fall in revenues from Gaming Components and Systems.
However, Corsair’s adjusted operating income amounted to $15.39 million, reflecting a 15.2% decline from the previous year’s quarter. Its adjusted net income decreased 20.2% year-over-year to $9.52 million. Also, its non-GAAP net income per share attributable to shareholders came in at $0.09, down 18.2% year-over-year.
The company’s adjusted EBITDA for the quarter was $18.02 million, indicating a 12.4% decline from the prior year’s period. Also, CRSR’s cash outflow from operating activities amounted to $26.32 million versus a cash inflow of $41.83 million in the same period last year.
As of March 31, 2024, Corsair’s cash and restricted cash stood at $129.94 million, compared to $178.33 million as of December 31, 2023.
Mixed Analyst Expectations
Analysts expect CRSR’s EPS for the second quarter (ended June 2024) to increase 2.9% year-over-year to $0.09. However, the consensus revenue estimate of $319.98 million for the same period indicates a 1.7% year-over-year decline.
For the fiscal year ending December 2024, Street expects CRSR’s revenue and EPS to grow 2.8% and 25.8% from the prior year to $1.50 billion and $0.69, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 10.2% and 30.9% year-over-year to $1.65 billion and $0.91, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, CRSR is trading at 14.99x, which is 38.6% lower than the industry average of 24.41x. Similarly, the stock’s forward EV/Sales and EV/EBIT multiples of 0.80 and 11.77 are 72.6% and 43.4% lower than the respective industry averages of 2.93x and 20.78x. Additionally, the stock’s 1.59x forward Price/Book is 61.1% below the industry average of 4.09x.
POWR Ratings Reflect Uncertainty
CRSR’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRSR has a B grade in Value, which aligns with its lower-than-industry valuation. However, with a five-year beta of 1.59, the stock has earned a grade C for Stability. It also has a C grade for Sentiment, consistent with mixed analyst estimates.
CRSR is ranked #25 out of 38 stocks within the B-rated Technology - Hardware industry.
Beyond what I have stated above, we have also given CRSR grades for Growth, Momentum, and Quality. Get all CRSR ratings here.
Bottom Line
Corsair Gaming's recent financial struggles reflect broader challenges in the gaming hardware industry amidst shifting consumer behavior. As people increasingly venture out and remain cautious due to sticky inflation, discretionary spending on gaming peripherals and hardware has taken a hit. This contrasts sharply with the pandemic era when homebound consumers bolstered demand for such products.
While many investors may find CRSR's current valuation enticing, especially gaming enthusiasts looking for potential bargains, the company faces significant headwinds that could impede its recovery. Despite trading at a discount compared to its peers, with shares down 42% over the past year, the company's recent financial performance has fallen short of expectations, raising concerns even among gaming enthusiasts.
As investors weigh the company's potential against its recent financial performance, investing in Corsair Gaming hinges on its ability to navigate these challenges and leverage its strengths in a rapidly evolving industry. Given this backdrop, waiting for a better entry point in this stock seems wise now.
How Does Corsair Gaming, Inc. (CRSR) Stack Up Against Its Peers?
While CRSR has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) rated stocks within the Technology - Hardware industry: SigmaTron International, Inc. (SGMA), Lantronix, Inc. (LTRX), and AstroNova, Inc. (ALOT). To explore more technology hardware stocks, click here.
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CRSR shares were trading at $10.37 per share on Thursday afternoon, up $0.05 (+0.48%). Year-to-date, CRSR has declined -26.45%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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