Gaming is having a massive resurgence, thanks to Shelter at Home, Educate at Home, Work from Home, Everything from Home, et al. All of the gaming companies reported an increase in revenue in the 2nd quarter of 2020. However, the clear winner wasn’t the maker of Fortnite (partially owned by Tencent), Call of Duty (Activision) or Grand Theft Auto (Take-Two Interactive), although each of those put in a strong showing. As is often the case, it was the little widget that makes everything work – the headset. As you can see in the Stock Report Card below, Turtle Beach’s revenue almost doubled in the 2nd quarter of 2020 year over year, soaring to sales of $79.7 million.
Turtle Beach’s net income was equally impressive, coming in at $8.2 million, compared to $2.4 million in 2Q 2019. While many companies, including Tesla and Apple, have suspended their forward guidance on revenue and EPS, Turtle Beach projects sales of $185 million in the 2nd half of 2020, with net income per share of $0.50. If we assume that each quarter is equal (which is unlikely), then 3Q 2020 revenue should come in at $92.5 million. That would be almost double what the 3rd quarter of 2019 saw, at $46.7 million. The 3rd quarter of 2019 also saw a net loss of $3.1 million. So, the profitability could be noteworthy as well. The 3rd quarter results should be announced around Nov. 6, 2020.
According to Juergen Stark, CEO of Turtle Beach, “We believe the demand is … being driven by greater overall engagement of existing gamers, as well as new and lapsed gamers joining the market as new gaming headset users. In addition, non-gamers are buying headsets for at-home work, school and socializing.”
Like many gaming companies, Turtle Beach’s seasonally strong quarter is typically Christmas. Last year’s 4th quarter revenue was $101.8 million, with $20.4 million in net income. This year, the strong quarter might be moved to the Back to School season (the 3rd quarter), when parents purchase headsets to be able to work from home, while also monitoring the schooling of their kids. If the 2nd half of the year projection of $185 million in sales is divided equally or weighted toward the coming 3rd quarter, then the 4th quarter 2020 results will not look impressive compared to 2019. So, this is something to monitor when the earnings report is released in November.
It’s rare to find the best performer on a Stock Report Card to also be the one with the lowest price/earnings ratio. Turtle Beach has already enjoyed a rally of almost five-fold since the COVID-crisis stock market rout in March.
In a recessionary year, it’s important to include macro trends in your buy/sell analysis. It’s clear that Turtle Beach stock can be vulnerable when stocks drop en masse. Between January and March of 2020, Turtle Beach lost more than half of its value.
So, if the current market rally peters out, it could drag even great little companies like Turtle Beach down with it. On the other hand, if you purchase and the stock shows continued strong performance, you might have to move swiftly to capture gains. In such a volatile market as we’ve seen in 2020, the right answer tends to be not all and not nothing. It requires a lot of babysitting to be on the right side of the trade in 2020.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.