Turtle Beach Corp: Pick & Shovel Gaming Stock Poised to Rip Higher

Turtle Beach Corp Reports Record Q1 Results & Raises 2021 Guidance

Turtle Beach Corp (NASDAQ:HEAR) is a fabulous tech stock that has been quietly trending higher.

Turtle Beach isn’t your typical consumer electronics company, like those that make video games and consoles. Nope, it’s a pick-and-shovel company that makes all those games and consoles more fun to operate.

And by the looks of HEAR stock’s performance, many consumers can’t imagine interacting with their electronic devices without the help of Turtle Beach Corp. Turtle Beach stock has been on fire over the last 18 months.

HEAR stock is up by:

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  • 44% over the last six months
  • 120% year-over-year
  • 55% year-to-date
  • 705% since bottoming in March 2020

Chart courtesy of StockCharts.com

Investors have good reason to be bullish on Turtle Beach stock.

In addition to announcing another quarter of strong financial results—with sales, gross margin, net income, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) all reaching record-high levels—the company also raised its full-year guidance.

And the company expects that positive trend to continue.

According to The NPD Group, Inc., U.S. retail sales of console headsets in the first quarter of 2021 hit record levels, with the overall video game console market rising by 60%. On top of that, U.S. sales of personal computer (PC) headsets, keyboards, and mice rose by more than 90%. (Source: “Turtle Beach Reports Strong First Quarter 2021 Results And Raises Full-Year Outlook,” Turtle Beach Corp, May 5, 2021.)

The frothy consumer electronics environment, coupled with Turtle Beach’s solid market share and new product launches, is expected to help the company top its record 2020 financials.

HEAR Stock Overview

Turtle Beach is one of the world’s leading video game accessory providers. The company’s “ROCCAT” brand sells keyboards, mice, headsets, mousepads, and other PC accessories. (Source: “Investors Presentation: May 2021,” Turtle Beach Corp, last accessed June 30, 2021.)

The company has actually been the leader in console gaming headsets for more than 10 years. Its “Neat Microphones” brand, which Turtle Beach acquired in January 2021, creates high-quality microphones for gamers, streamers, people who work from home, and others.

Despite the company’s solid market penetration, there’s still a lot of room for it to grow in the following segments:

  • The $1.7-billion market for console gaming headsets
  • The $3.4-billion market for PC gaming headsets, keyboards, and mice with its ROCCAT brand expansion
  • The $2.3-billion market for global microphones with its recent acquisition of Neat Microphones
  • Additional new categories

Record Start to 2021

In May, Turtle Beach announced that its revenue for the first quarter of 2021 (ended March 31) increased by 166% year-over-year to $93.1 million. (Source: Turtle Beach Corp, May 5, 2021, op. cit.)

The company’s net income in the quarter was $8.8 million ($0.49 per share), compared to a first-quarter 2020 net loss of $3.6 million ($0.25 loss per share).

Its adjusted EBITDA were $15.3 million, an $18.0-million increase over the first-quarter 2020 adjusted EBITDA loss of $2.7 million.

The company’s cash flow from operations was $21.1 million, a 20% increase from the $17.5 million recorded for the same prior-year period.

Turtle Beach Corp ended the first quarter with $63.0 million in cash and cash equivalents—and no outstanding debt under its revolving credit facility.

Juergen Stark, CEO, noted, “Consumer demand for console headsets and PC gaming accessories remained at elevated levels, our category expansions are going well, and our operational excellence again allowed us to gain market share, leverage operating costs, and deliver better than expected results.”

Stark added,

As previously announced, we have multiple new product initiatives planned for 2021, including the continued significant expansion of our PC gaming accessories line, the launch of several new Neat Microphone products, and the entry into other new product categories. We are making the necessary investments to fuel these product launches, and believe they will contribute meaningfully to our growth this year and well beyond.

(Source: Turtle Beach Corp, May 5, 2021, op. cit.)

Turtle Beach Corp Raises Full-Year Guidance

Turtle Beach has revised its guidance higher for 2021. The company now expects to report:

  • Revenue of approximately $385.0 million, up by seven percent from the $360.0 million in 2020 and up by $15.0 million from the previous guidance of $370.0 million
  • Adjusted EBITDA of approximately $50.0 million, up from the previous guidance of approximately $45.0 million
  • Adjusted net income per diluted share of approximately $1.50, up from the previous guidance of $1.35

For the second quarter of 2021, Turtle Beach Corp expects to report:

  • Revenue of approximately $70.0 million, somewhat lower than the revenue in the second quarter of 2020, when sales rose by 93% as a result of sudden, significant increases in consumer demand caused in part by stay-at-home orders
  • Adjusted EBITDA of approximately $2.0 million
  • Adjusted loss per diluted share of approximately $0.07

Analyst Take

As shown above, Turtle Beach Corp reported another stellar quarter of results, which allowed management to raise their full-year guidance.

The company has a leading position in the video game accessories market that it expects to maintain. For the long run, the company is targeting revenue growth at a compound annual growth rate (CAGR) of 10% to 20%, gross margin in the mid-30% range, and EBITDA growth at a CAGR of 15% to 30%.

That bodes well for investors of Turtle Beach stock.