What happened

Shares of Turtle Beach (HEAR 1.02%) plunged 13% on Wednesday after the company reported third-quarter earnings results. The figures came in above analysts' estimates, but investors may have priced in even higher expectations, as shares were up 11 times year to date before today. The stock tripled in May alone.

So what

Revenue in the third quarter more than doubled to $74.4 million, driven by strong demand for console gaming headsets within the "battle royale" genre, which includes hot titles like Fortnite and PlayerUnknown's Battlegrounds. Gross margin expanded by 6.1 percentage points to 41%, thanks to a favorable product mix and operating leverage. That all led to net income of $14.7 million, or $0.91 per share, compared to red ink a year ago. Analysts had been modeling for $73.7 million in sales and earnings per share of $0.91.

Man playing video games with a headset

Image source: Getty Images.

The console headset market is booming, while Turtle Beach is also gaining market share. The momentum is expected to continue through the holidays, leading Turtle Beach to raise its outlook.

Now what

"Given our impressive results, and our expectation of a continued strong console headset market in the upcoming holiday season, we are raising our fourth quarter and 2018 financial outlook," CEO Juergen Stark said in a statement. "We believe these positive developments will position us to accelerate selective growth investments while fully repaying our subordinated notes by the end of March 2019."

Turtle Beach now expects revenue in the fourth quarter to grow 18% to $94 million, which should bring full-year 2018 revenue to $270 million, up from its prior forecast of $255 million. Fourth-quarter net income should be around $16.7 million, or $1.02 per share, bringing full-year earnings per share to $2.55, up from previous guidance of $1.95 per share.