This has been a great year for the video gaming industry as the COVID-19 crisis confined people to their homes and forced them to look for alternate means of entertainment and leisure compared to activities that required going outdoors. Logitech International (LOGI -1.17%) has won big from this trend; shares of the computer peripherals maker have outperformed the broader market by a huge margin.
Logitech's hot stock market rally is well deserved -- it has capitalized on the growing demand for video gaming hardware thanks to its broad product portfolio. But the video gaming market is one of the many catalysts for the company, as its outstanding results for the second quarter of fiscal 2021 showed us last month.
In fact, there are quite a few reasons why Logitech remains a buy even after its terrific gains so far in 2020. Let's take a look at a few of them.
Image source: Getty Images
Video gaming growth will be a tailwind
Logitech delivered 73% year-over-year revenue growth last quarter on the back of strong growth across different segments. The video gaming division playing a critical role in that sharp spike, as it accounts for nearly 24% of Logitech's total revenue, which makes it the company's biggest business.
The company recorded 85% year-over-year growth in constant currency terms in the video gaming business last quarter to $298 million. Logitech attributed this jump to strong demand from different gaming products related to PCs, consoles, and live video game streaming.
Logitech's gaming growth is unlikely to run out of momentum anytime soon. The launch of new gaming consoles by Sony and Microsoft could drive sales of the company's gaming gear such as racing wheels and headsets. Logitech has already released new products compatible with the latest consoles.
On the other hand, sales of gaming mice, keyboards, and streaming gear are likely to benefit from the increasing interest in e-sports. The e-sports market is expected to generate $950 million in revenue this year, according to third-party estimates. By 2023, the size of the market could jump to nearly $1.6 billion. As a result, demand for video gaming-related peripherals could keep rising, which bodes well for Logitech.
The PC gaming peripheral market is expected to generate more than $7 billion in revenue by 2025 per third-party estimates, and Logitech was reportedly the second-biggest player in this space last year. So, Logitech's biggest revenue-generating business still has a lot of room for growth.
The other big catalyst
The novel coronavirus pandemic has not only been a boon for the video gaming industry; it has also led to an increase in sales of non-gaming PC peripherals such as web cameras, keyboards, and pointing devices such as mice. These three segments generated $473 million in revenue for Logitech last quarter. They accounted for 37.6% of Logitech's total revenue and recorded 57% growth over the prior-year period.
The company also saw a huge bump in sales of video conferencing products such as dedicated conferencing cameras, conference room solutions supporting different software such as Microsoft Teams, Alphabet's Google Meet, and Zoom Rooms. Revenue from this segment was up a whopping 161% year over year to $237 million (or 19% of total revenue) in the previous quarter in constant currency terms.
The common thread that's driving growth across the businesses listed above is the shift toward remote working in light of the COVID-19 outbreak. According to a report by Global Workplace Analytics and FlexJobs, there was a 159% spike in remote workers in the U.S. between 2005 and 2017. Still, just 3.6% of the workforce in the U.S. works from home either half-time or more. Post COVID-19, it is estimated that 25% to 30% of the workforce will shift toward working remotely for multiple days a week by the end of 2021.
This means that more organizations are likely to purchase equipment to help their employees work remotely in a seamless manner, opening another big opportunity for Logitech to dig into. Not surprisingly, Logitech has substantially increased its outlook for fiscal 2021. It now expects 35% to 40% top-line growth this year as compared to the earlier forecast for 10% to 13% growth.
And given that the stock trades at just 21 times trailing earnings, it isn't too late for investors to go long Logitech. The company's bright outlook and long-term catalysts indicate that it should be able to sustain its momentum and remain a top growth stock even after a hot rally so far this year.
