Is This Gaming Stock Ready to Turn the Corner?

The recently reported quarter for computer accessory provider Corsair Gaming (CRSR 0.54%) was not a good one. In this Motley Fool Live segment from "The Gaming Show," recorded on April 25, Fool.com contributor Ryan Henderson takes a closer look at this company's current place in the gaming accessory market. 

Ryan Henderson: So one of the biggest accessory providers is Corsair Gaming. They went public I want to say just over a year ago, and when they came out, sales were off to an insanely hot start because it was right during COVID, a whole bunch of people were either starting to become creators or content creators or trying to get more serious into gaming. So a lot of them bought headsets, a lot of them bought custom pieces for their PCs. So they specifically had a very big boost. COVID, this year, they have basically reverted. On top of that, there's been an increase in the prices of GPUs, which has really hurt them because a lot of their customers build their own gaming PCs, and so without certain GPUs or if GPU prices are way too high, there's just less demand to do that. So first quarter revenue this year was down 28 percent that it was $380 million. They attributed this to one, the rising GPU prices, two, the excess demand from last year, and then three, they also said the sales fell off in Europe a little bit just related to some of the geopolitical stuff. It's not that these were preliminary results. So I'm not sure why they do this But whenever, if they don't want some sort of a shock from their earnings report, they'll release, like sometimes, two weeks before and say, here's what's going to come out roughly. So they said they're going to have him around $14-$15 million dollars in adjusted EBITDA. I would not take that number at face value for a hardware manufacturer because there can be depreciation in the inventory, especially with a lot of the how fast the gaming market moves and some of those pieces. So the EBITDA figure isn't that useful. I tried to focus on cash flow, especially for a business like this, but we didn't get any of that information yet. So I think the first quarter comes out May 5th. So it was not a great quarter. They did say they had some market share gains in some of their primary markets, and so they are sort of the market leader, especially in the gaming components and systems.

I actually, I really do like Corsair, I think the management team or the the CEO who's been there for a long time. He's been sort of a, one, he's been in the gaming hardware market for maybe the longest of anyone I can think of. He's really been sort of a pioneer in the space. So he has definitely has a long term mindset, but it's just a tough business to be in. It doesn't deserve quite the multiple of something that's very software related where spend is quite consistent because this, the gaming hardware market or the peripherals or sort of the accessories is very cyclical. When gaming gets really, really popular, or you have a huge hit game, you're going to have a whole lot of people trying to be content creators, and so it's not quite a smooth, there isn't a recurring revenue element here. So it's been a tough go of it for the stock and it doesn't seem to be slowing down at any point. I remember, they ship a lot of their items overseas and they said at one point the cost per container was three times what it was two years ago. So that can obviously hurt their margins.