All right, I think we're gonna start. Good afternoon, everybody. I'm Stephen Ju from the UBS Internet Equity Research Team. Joining me on stage is Andy Paul, who is the CEO of Corsair Gaming. Welcome back, Andy, and thanks for joining us again.
Yeah, thanks for having us.
Awesome. So I think, Andy, I think you're gonna run us through a brief presentation before we get into Q&A.
I will.
Yeah.
Just a few slides.
All right.
And I think there's a variety of people in the room that may or may not know what we do, so I'll try and keep this brief. So the first thing is, what is Corsair doing? What's our business about? So we, we, are in gaming, gaming hardware. We make a full suite of products. We have about 29 different product lines, ranging from components that, consumers use to build gaming PCs through to the peripherals they also use to play the games with. This has been the revenue and margin. So you can see we got up to close to $2 billion of revenue in 2021. And both 2020 and 2021 were subject to what we call the COVID bulge, when people were stuck at home, and, spending most of their time gaming.
Of course, there were some government stimulus checks sent out, which largely, as far as we can see, went into buying gaming gear. So now we're at the other side of that, and obviously, the revenue's gone down as people have gone back to work, but we're now back on a growth track, and you can see what's happened with the margins. The margins are now back in growth mode, back to where we expect they're gonna get to. Just to give you a sense of what's going on with the market and why we're so excited about the gaming hardware market, there's about 1.6 billion people that say that they're playing PC games regularly. Of that, about 10% only have got dedicated gaming gear of any kind.
The vast majority of people in the world are playing PC games on either a standard family PC or going to an iCafe, so there's a lot of opportunity there. And the people that we're focused on for most of our business is this core group of about 28 million people we call PC gaming enthusiasts, who are building PCs out of components. And the self-built market, it turns out, is actually a bigger TAM than the pre-built market. So in other words, if you think about putting together a gaming PC, you can either build it yourself, or you could buy one from Alienware, and the build it yourself market is bigger in dollars, little less in units, but bigger in dollars. So just this slide just shows you how much white space there is left in terms of market opportunity.
We're a long, long way away from saturation. Now, this is what's driving the increase. The fact is that, again, no surprise here, that gaming is something that the younger generations are more accustomed to. Obviously, if you're in your twenties now, you've spent your whole life in front of an interactive screen, whereas those of us that are a little bit older, you know, grew up without cell phones and without PCs. But so these days, you can see 81% of people, gamers in Gen Z, we won't bother to ask people in five or 10 years whether they're a gamer, because everybody is gonna be a gamer. But that's been moving, and you can see the number of hours spent on gaming per week is also increasing.
This is a more tactical slide to show you what's going on post-COVID, and this one's important. So while on the left, we see that the market is... This is as far as we can measure all the inputs we get from our European customers, U.S. customers, NPD data, this sort of thing. The market right now, as of Q3, is about 3% down from last year. So that's actually better than it was at the beginning of the year, and for consumer electronics, not bad at all, but we've now flattened out. Again, this is market data.
But when we look at pre-COVID, 50%-60% increase, and so the reason that's important is that when you looked at that graph I showed at the beginning of the revenue, you can see that the revenue went up and then went back down. If it had just been a pull forward with a static group of customers, then the revenue would have been much smaller than pre-COVID. The fact it's gone up means that we've got new gamers that actually came into the mix, gamers that had never bought hardware before. They came into this category to start spending money on gaming gear during COVID, and they're now still buying and refreshing, and that's why the business, the market is still bigger, significantly bigger than it was before COVID.
We've also done some surveys recently, this was done earlier this year, asking people that built gaming PCs during COVID when they're likely to refresh and upgrade and build another PC. You can see the takeaway from that was that 84% of people that were surveyed that have built PCs, gaming PCs in 2020, say they're going to upgrade within the next one or two years. All very positive data. Great games have been out this year. Some of the big ones you can see here, Starfield, everyone's heard about this. We've had Baldur's Gate, Diablo IV. These are all games that people are spending a lot of hours on, and most of these games have come out with hardware requirements that are significantly higher than what most people own.
So this is also driving people to upgrade their equipment. And then lastly, just a few things we've launched. We've really been doubling down on new products this year. We've launched a lot of new peripherals. Most of them have got 4+ ratings on Amazon, so doing very well indeed. We're also moving into customization. We're finding that one area where we can differentiate in hardware is to customize, and I don't mean customize in short runs, I mean customize down to single units. So we're able to offer people products now that are completely customized with graphics to their choice... And then lastly, we just launched a very interesting new category called Elgato Marketplace. Elgato is one of the companies we bought in 2018, which is a content creation company.
They make peripherals for content creation, such as cameras and microphones, and they have a wonderful product called Stream Deck, which allows you to control very complex actions. So you can, with one button, go live on Twitch, for example, or live on YouTube. You can send messages to people. If maybe if people are giving you a tip, you could say, "Thanks for the tip." We've launched a marketplace because this device has a lot of capabilities of third-party programmers programming sending plugins that you can plug into this device, software plugins, and we've now opened up a marketplace to allow these people to sell their products on our marketplace. And so far, really good stats on this.
We've only launched it about a month, but we have about 250 individual third parties that are writing apps for this and already selling products. So this is a completely brand-new stream of revenue for us. And then lastly, we also, in our components products that people use to build PCs, we've just devised a completely new infrastructure that allows people to put components together with much fewer wires. Every single component now has a microcontroller inside, so we can intelligently talk between them. And that is the summary.
All right. So I-
Oh, that's not me. Okay.
So, that slide where you have 84% of the folks who were buyers during COVID, and they're switched to... They're set to come back and buy more things from you on an upgrade cycle. So I guess, you know, that's on the come. So but, you know, can we talk about why you believe that Corsair is best positioned to capture the incremental market share? And you know, what your moat, you know, versus the competitors might be in terms of the product line?
Well, the first thing is that we've been doing this for 30 years.
Yeah.
So it's a fairly old company. We started with one product line, which was memory, and we suddenly became the best at that job of making very fast and overclockable memory. And over the years, we've done the same thing with every product line we've gone into. And so the product lines we have been making for the longest time, like memory, we have an astonishing market share in desktop gaming in the U.S. Mainly memory, we have, like, 72% market share now. Power supplies, cases, we have, you know, 20, 30, 40% market share in some of these categories. So... And we're number one in almost every one of those categories. Now, the products we've launched more lately, peripherals, slightly bigger competitive base, we're not number one, but we're in the top three.
And so what we find is that, people that wanna build, you know, decent PCs with reliable hardware or wanna buy peripherals that are gonna work, work reliably, they tend to gravitate towards our brand, and the brand's been around for a long time. It means quality, reliability. So that's why... And oftentimes we have a premium on the prices to reflect that, 'cause it costs more to make great products. And so oftentimes, that's what people get drawn to. Either their friends tell them what to buy, that have built a PC before or bought a, you know, headset or a keyboard, and so they learn about it that way.
Got it.
But it's generally brand strength and quality of products.
Understood. So I think you highlighted infinite customization down to the individual pieces, and I think in that regard, you recently acquired a company called Drop, right? So-
We did, yeah.
Yeah. So, you know, I guess it hasn't been that long, but what are sort of your, some of your early learnings? I mean, do you think that extends greater stickiness for the brand overall? You know, with Corsair products-
Well-
-I can do this, I can do that.
Yeah, so that's a complicated question.
Yeah.
We bought a company actually in 2019 called SCUF Gaming-
Yeah
... which made very tricked out console controllers for Xbox and PlayStation, and they had the ability to customize individual products. It was more, they had a design library of, like, 500 different graphics that you could pick from, but pretty much everyone going out the door was personalized.
Yeah.
That was 100% direct to consumer. So we'd already seen that and realized that, you know, there's a demand for customized gaming gear, in the same way as a demand for customized clothing and everything. And you can obviously get a pretty good premium by doing that, and once you've got a process down, it's not too expensive to do it. So when we bought Drop, that was another e-commerce company, which specialized in making very individual things for a fairly selected group. I mean, 7 million customers they've got, but it's a very selected group. And so what we realized was that was a platform that we could use to sell customized gear, whether it's keyboards, mice, headsets, microphones, to consumers.
Yeah.
That's what we'll use it for. Very early days, we only closed on that a few months ago.
Yeah.
So we're just in the middle of integration, but that's, that's the plan. We've already got them selling some of our products on the site.
Gotcha.
And then we're selling some of their products in our channels.
Yeah. I think, going back to the Elgato marketplace product-
Yeah
when I hear marketplace, I think connecting supply and demand, and I think connecting or extracting some sort of economics out of, you know, connecting supply. Now, probably, I'm not sure if you're, you know, set to announce anything right now, but at least it, you know, the optimist in me wants to believe that there's probably some sort of a revenue model.
Yeah
... down the line. But is your priority right now just to scale the audience and, you know-
Well, it happens in the same way.
Yeah.
I'd say, you know, half or two-thirds of the plugins and apps are free now.
Yeah
... on the marketplace. But we've already had a lot of people sign up.
Yeah
... a very significant amount of the user base has already signed up and opened an account on Marketplace. I think the priority is to get more and more apps in the store.
Yeah.
We've got 250 providers, so there's a lot of different plugins. The ones that tend to be things that people pay for are things, you know, plugins for video editing-
Yeah.
photo editing, that sort of thing, and of course, streaming. But yeah, we're just trying to grow the numbers. I mean, the revenue model, I mean, I was joking with an investor earlier today, I mean, we could, this could be $1 million a year, it could be $50 million a year.
Yeah.
It's impossible to know because we have an installed base of about 2 million users. We want to take that to 5 million as fast as we can, and then it's just how much per user gets spent, you know, how many people buy nothing, how many people go on the marketplace?
Yeah.
But at the moment, the traffic and the activity is very, very encouraging.
Yeah. And I think the AOV, among those who pay, are about $100 or so?
We've seen $100.
Yeah.
I mean, it's, it's actually about $20, right now, it's settled down to about $20. It's the average order value. So it's not, you know, it's not $2.99 or anything.
Yeah.
It's significant, and we've got some people spending $100. I think, you know, as the numbers get bigger, we'll center it. But it's been in that $20-$30 range for the last couple of weeks.
Yeah.
And again, we've only launched this in two months, so early, early days.
Early days.
I'd say pretty positive, pretty encouraging.
Yeah. And I remember, like, this has long been a part of the story, but there was sort of an interconnected fiber that connects all the hardware together in terms of the lighting and everything else, and the software. So, you know, how has, you know, overall software and the software segment for you, you know, become an area of greater focus overall for the entire company?
So, I think that what we've realized is that software when you're selling hardware devices, the primary thing about software is it has to be a utility that is easy to load and easy to use and give some benefit to the consumer. Otherwise, no one wants to bother with setting anything up.
Yeah.
The thing we launched recently was quite innovative, where we actually put a microcontroller into every single device, and then we eliminated a lot of the wires. So when you're connecting fans together, traditionally, you have to run each fan connected back to the motherboard. Now you just snap them together, and then it just goes in one continuous backbone, so to a hub that then plugs into the motherboard. Very easy way to build a PC. Once you've done that, because of the microcontroller, the software now knows where everything is-
Yep
... and knows what you've got connected, so it instantly gives you a picture of your whole system. I mean, you can organize the lighting effects and the setup, so which fan is going to turn on more, depending on how hot different parts of the PC get.
Yeah.
You could say, for example, "Look, if my GPU starts getting warm, I want these three fans to turn red and then these ones to go on harder." It's infinite possibility.
Yeah.
But that is... We've been at this for several years, and we do think that if we get people to buy that sort of ecosystem, they're clearly going to buy the next fan or the next water cooler or the next device-
Yeah
that plugs in, so.
Going back to, you know, the gaming layer or the-
Yeah
man cave slide, where
Yeah
You have the whole setup.
Yeah.
So on top of that, like, from a strategic perspective, like, where do you think the potential white space is gonna be? Is it gonna be just deeper penetration into the categories that already exist, or are there other sort of peripherals or devices or categories that we should be thinking about?
Yeah. Well, I think the answer is both. I mean-
Yeah
... at the moment, our biggest growth opportunity is the fact that... So let me back up. When we get into any category, we usually think about 20% market share we should naturally be able to get because of our position in the channel and the brand strength. What's happened is we've got market shares in excess of 50% in many categories, and so a lot of the growth in the last few years has actually been from some of our older categories growing market share faster than we thought.
Yep.
But moving forward to the next five years, the areas that we've gone into more recently, which is really gaming peripherals, keyboards, mice, headsets, cameras, mice, many of those still have single-digit market shares. So that's where the growth is gonna come from, regardless of whether the market grows, we should be able to grow our share, and we actually think, though, that the market will start to grow again next year-
Yeah
in those categories.
Got it. And I think you've also touched on the possibility of simulated racing, and also mobile gaming gear. Now, when we talk about simulated racing, are we talking about just the steering wheel, or are we talking about the whole-
Yeah, the whole thing.
The cage, yeah.
So, for those of us that don't know, there's a big, growing market. It's about a billion-dollar market right now, for people that want to simulate racing, and this has really come from the Formula One world, which again, as most of you know, is huge in Europe, just started to become huge in the U.S. Now we have three Formula One races in the U.S., and Drive to Survive has really made that popular. So, while Sim Racing has been sort of steadily gaining ground, it suddenly exploded, and where it's exploded is in the U.S. Now, you can get, as you say, you can get a kit that's just a little steering wheel made of mostly plastic.
You bolt onto a desk and plug into a PlayStation, or you can get a tubular frame with a seat bolted in and a steering wheel with a lot of force feedback and pedals that could cost you, you know, $2,000-3,000. And so we're gonna try and hit the high end of it.
Yeah.
The goal is to make every single part.
Okay. Is that a build or acquire?
That could be either. Yeah, at the moment, we're assuming that we do want to try and get some revenue within the next year or so.
Yeah.
So we're off building what we can and looking at the market. There'll be some areas like, I think, steering wheels, where there's people that have got a few more years expert. And for us, the classic acquisition is finding companies that are very small and have no channel, you know, or consumer exposure, but have got the technology. And so we'll probably, you know, make some small acquisitions, I would expect. If not, we'll just make the things ourselves, but-
Okay
... but that's the most likely.
Got it. And I think previously you've also mentioned fight sticks. I mean, there's a segment there - but is that still an attractive segment or?
It's small. Yeah.
Okay.
I mean, so, in a Flight Simulator, actually, the latest version of Flight Simulator did sort of boost that category.
Yeah.
But if you had to pick, you know, Flight Sim versus sim racing, I mean, sim racing dwarfs... you know, but yeah, there is—there are some other categories, but, but small.
Okay.
Mobile gaming, we've also talked about, and that's just the fact that so many people playing games on mobile, there is a market for these snap-on, Nintendo Switch-type controllers.
Okay.
You know, we'll launch one of those, and if that market gets big, we can look for acquisitions. At the moment, it's still quite tiny.
Okay.
But big in numbers.
Got it. Got it. Now, kind of looking beyond the things that you can control from a product perspective, unfortunately, you have to sit and worry about macro factors, higher interest rates, et cetera. So, you know, in your view, like, how does the world look like next year? Any headwinds that you wanna call out in terms of what you might be seeing? Either, you know, in terms of bringing on new users who might be looking to update their PCs or any other factors that we should be thinking about.
Well, I'd say that the consumers are less worried about people watching the consumers at the moment.
Yeah.
Consumers are buying. The data that's come out of Black Friday week and Cyber Monday has been pretty good.
Yeah.
Certainly growth from last year, so that's encouraging. Big bounce back in Europe, we've seen. You know, Europe had a bit of a headwind, if you can call it that, with the Russia-Ukraine war. That really stopped a lot of consumer spending-
Yeah
... especially in the countries near there. But that's recovered very, very well, so Europe's now, for us, about the same size as the U.S. So yeah, so the signs are good. Great games are coming out, so people are still buying hardware, and I think, you know, I would expect to see growth next year now. You know, there's a lot of worries in the market, obviously, with rising interest rates and that sort of thing. So far, it doesn't seem to have affected the market too much because we've got this big refresh bulge coming.
Yeah.
I think there's certainly... You know, what's happening is we've certainly got some holdback, some hesitancy from some of our consumers that's being overwhelmed by all these new gamers that are coming in, starting to buy gear in the COVID years-
Yeah
... that are now getting ready for a refresh.
Got it. Now, I mean, we highlighted the refresh cycle before, and they're coming, but one of the other catalysts that you just highlighted was that there's great content from the software developers coming. So do you think, you know, we should be starting to think about untethering the growth of the company from just sort of hardware obsolescence refresh cycles, or should it be more tethered to the arrival of great content?
Yeah, it helps. I mean, if COVID hadn't happened-
Yeah
... If we looked at the five years previous to that, then what we saw was steady growth going on in gaming, sort of a generational growth, and then we saw spurts of growth coming from games. The biggest one in 2018 being Fortnite. When that launched, every school kid had to play Fortnite, and everyone had to go and get a headset. So that tends to sort of drive demand. You know, Call of Duty: Modern Warfare last year did pretty well. I think the games recently, Starfield and Baldur's Gate, a lot of these newer games are really calling out, you know, more hardware. So for example, most of the games are calling out 32 gigs of memory needed for maximum settings.
Yeah.
The typical gamer has got 16 gigs, so there's a lot of upgrade going on there. And the same thing is happening with graphics cards.
Yeah.
So each year, the developers put more and more, more and more content. They're using more and more of the AI that NVIDIA provides to go into these systems, and that just requires higher-end graphics cards, more power, more cooling, and so on.
Yeah. I gotta ask you this question because it's on the minds of every investor, peer, Media, et cetera. So from a practical perspective, and can you talk about, you know, what has AI done for you from a product perspective, either internally or in adjacent industry, whether it's in the software side of things?
Yeah.
Yeah.
Well, so AI, the biggest effect we see at the moment is within, NVIDIA graphics cards. There's a lot of AI going on in, in the software, that basically infers pixel rendering, and so I think 70% of the pixels are being inferred. Not surprisingly, when you actually think about how these graphic images are put together, but that's already going on. I do think that, we've got a lot of software opportunities, especially in the, content creator space, where these days, you can be, whoever you want to be on camera. You can sound like whoever you want to. You can use ChatGPT to even write you a speech. So one of the guys at the office showed me the other day, Barack Obama talking in my voice, delivering a speech that he made up about Corsair earnings call.
Yeah.
So this is all the stuff that's possible. And I think that's where we're first gonna see it for us, is in software related to content creation. There's not much we can put into, you know, keyboards and mice. I think like every company, AI is gonna help us in, you know, forecasting supply chain and all these other things. But, you know, when you're making hardware products, it's really the software that gives you the opportunity to.
Yeah.
So yeah.
I don't know if I have the answer either, but it sounds like either it'll accelerate great content development, and we'll have more content out there-
That's right
... which is a greater opportunity for you, or, we will have more immersive and-
Well, more interaction.
Yeah.
More, more immersive and more interactive games. I mean, you can see, even, even with Starfield, where you've got this unlimited amount of things you can do-
Yeah
... and then, and maybe they've gone too far there, you know, with people saying, "I'm, I'm bored with this." You know, "It's just too, too much.
Yeah.
Although I'm still playing it, but yeah, I think that's what's gonna happen.
Yeah.
I mean, remember, we've got a long way to go with interactive entertainment. It's far from being realism.
Yeah.
But it's getting there rapidly, and that's what AI will help with. Yeah.
Got it. I think we're approaching the end of our session here, but I guess, you know, let's fast-forward a year. We're sitting here in November, might be tail end of November, might be December of 2024, and we're looking backwards in terms of what you've been, you know, accomplished in the trailing twelve. So what do you think we'll be talking about in terms of what you've done, and, you know, what do you think we'll be talking about in terms of the interesting things you might be planning for 2025?
Well, I would say, you know, we're gonna... Look, what I hope we're talking about is the fact that the market has recovered both from a perception and a reality. In other words, gamers are now buying products. There's more natural growth in the market. You know, we do expect growth to get back to 10-15%, you know, CAGR. So I'm hoping we're talking about that. I'm hoping we've got a much more realistic model around the marketplace, and we can actually sort of talk about, you know, a reasonable projection that could happen over the next few years. So we can sort of size what that opportunity is and what the spend may be required to get there.
Yeah.
So I think those are the two main things. I mean, but we've put about one new product out a week now.
Okay.
So, you know, some of these are fantastic launches, some of these are just refresh. We just put out one that was a PC controller, so it's a thing that looks like a console controller for PS5, but it actually works with a PC, and you've got all these different programmable buttons. So it's, it's kind of a bridge between a console controller and a keyboard and mouse. And that just took off. It sold out instantly.
Yeah.
Like, we've been making them as fast as we can. So, so I'm hoping to be talking about more success stories like that-
Yeah
... quite frankly.
Okay, great. Well, once again, thanks again for joining us. We'll wrap it there.
All right. Thanks, Steve.
All right. Thank you.