Sales of gaming PCs (personal computers) and related hardware increased in 2020 as people took to video games to keep themselves occupied amid the pandemic. Corsair Gaming (CRSR 1.74%) was a big beneficiary of this trend.
The seller of video gaming hardware and peripherals saw a significant spike in revenue and earnings last year, and its shares nearly doubled within two months of its September stock market debut. However, at this point, Corsair is down year-to-date in 2021, and lagging the broader market.
The Motley Fool's Evan Niu predicted this volatility because early investors and insiders were expected to unload Corsair stock after the post-IPO lock-up period expired. Investors are also seemingly worried about the shortage of components that held back Corsair's sales in the fourth quarter, as well as about the potential for a reduction in demand for gaming components in a post-pandemic world.
However, the market Corsair operates in is unlikely to lose momentum, and management is taking smart steps to take advantage.
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Corsair Gaming is solving a problem for gamers
Corsair recently launched two new prebuilt gaming systems -- the ONE a200 and the ONE i200. Offered with a choice of high-end processors from AMD and Intel, these gaming PCs will be powered by an NVIDIA (NVDA 3.71%) RTX 3080 graphics processing unit. The systems are already available in North America, the EU, and the U.K., and will later be sold in additional regions as well.
Gaming enthusiasts could start snapping up these gaming PCs due in part to the acute shortage of graphics cards and other components. Top-tier GPUs are either out of stock or are available only for substantially inflated prices. The NVIDIA RTX 3080, for example, was going for close to $2,200 last month, as compared to its suggested retail price of $699. Similarly, due to strong demand and tight supply, AMD's Ryzen 9 5900X, which has a retail price of $575 on the manufacturer's website, is being listed at around $850 by the best-priced third-party sellers on Amazon.
The ONE a200 priced at $3,799 has 32GB of RAM (random access memory), 1 TB of solid-state drive storage, and 2 TB of hard-disk drive storage. It also comes with Corsair's liquid cooling system. These components would cost a consumer upwards of $400 on the market, and we haven't included the costs of other components such as the motherboard, the power supply, and the Windows license. So, Corsair's new gaming systems look like a good deal as they start at $3,599 and are equipped with high-end parts.
Citing third-party estimates, Corsair points out that 51% of global gaming PCs are priced at more than $1,800. Jon Peddie Research estimates that consumers spent $18.5 billion on high-end PCs last year. The firm also points out that prebuilt, branded systems such as the ones Corsair is offering accounted for nearly two-thirds of the overall gaming PC market in 2019. All of this suggests that there is plenty of room for growth in Corsair's biggest business unit this year and beyond.
The financial impact
The attractive pricing of Corsair's new systems could give them a sales edge, as gaming enthusiasts will be able to save on the time, effort, and extra money required to assemble a PC on their own. NVIDIA estimates that the GPU supply shortage could last through 2021. If getting high-end components remains a problem for retail customers, sales of prebuilt PCs could be stronger than expected.
This bodes well for Corsair's gaming components and systems business, which registered 45% revenue growth in 2020 to $1.16 billion and produced nearly 69% of the company's top line. Also, the segment's performance is likely to remain strong over the long run. Third-party forecasters anticipate that shipments of gaming PCs will grow by 25% from last year's level by 2024.
Corsair Gaming is trading at 28 times trailing earnings and 17 times forward earnings after its recent pullback. So investors looking to add a video gaming stock to their portfolios should take a good look at this company, as it's solving an important problem for customers during a period of high demand for gaming PCs.
