What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing one of the biggest growth areas in the economy and the stock market. Right now is the video game industry and especially esports, while the video game industry was rapidly growing already the pandemic massively accelerated the growth and brought millions of new gamers into the market in 2020 league of legends world championship boasted a record 50 million concurrent viewers. Children. Now see esports as a viable career path with the top league of legends competitors, making hundreds of thousands of dollars per year, top twitch streamers can make millions.

There is currently a massive shift away from traditional sports in favor of esports. At the same time as the league of legends championship was reporting record, viewership numbers, the super bowl was rapidly losing viewers, especially among younger viewers, while the super bowl is still popular among older generations. The viewership among 18 to 19 year olds has decreased every single year since 2011, with the decline accelerating in recent years. In many ways, esports provides superior entertainment value because the esports fans play the games themselves through their own gameplay experience.

They have a deeper understanding of. What's going on in the competitions, most people do not play real sports competitively, so it's more difficult to get engaged when watching the games. This trend is expected to continue with statista, estimating global esports revenue to increase to 1.6 billion dollars in 2024. The global video game industry is expected to surpass 200 billion dollars by 2023., so the question becomes: how can we play the tectonic shift to traditional sports to video games? Unfortunately, the league of legends developer riot games is not publicly traded.

In our opinion, the next best investment opportunity is the high-end gaming hardware and peripherals industry. As more and more people get serious about esports and streaming, we should see massive increases in demand for these products. We think the best individual stock to play. This is corsair gaming, ticker, symbol, crsr at the time of recording this video is decreased.

More than 40 from its recent highs and at 27 per share represents a massive buying opportunity. In our opinion, in fact, i recently initiated a small position which i intend to add to on any dips. Keep in mind that i am not a financial advisor and this video is, for entertainment purposes, only make sure to do your own research and consult with a professional before making any investment decision corsair ipo'd in september of 2020. In the midst of the pandemic, the stock has done very well and is up 55, even despite the recent pullback.

They develop and manufacture a complete suite of gaming hardware and peripherals, including keyboards mice, gaming, pcs, microphones and more they're at the premium end of the market. With their high performance, pcs selling for three to four thousand dollars, most of their mechanical rgb keyboards sell for more than one hundred dollars and their gaming chairs sell in the three hundred dollar range. They target hardcore, gamers and streamers, who are willing to shell out thousands of dollars for a top tier gaming setup. You might think their focus on high-end gamers limits their revenue opportunity as a mainstream brand, but it's actually the opposite.

Gamers who spend at least one thousand dollars on their primary pc are considered hardcore. Hardcore gamers only represent 18 of total pc gamers, but they represent 83 of pc gaming and streaming gear spending. So targeting the hardcore gamers is where the vast majority of money can be made as games become more and more graphically. Intensive more advanced pc hardware is necessary to play them without lag.

The best way for a gamer to optimize performance is to build their own pc 46 of total gaming. Pc spending is by people building their own rigs, and this number is expected to grow. Corsair is a market leader in this area. They sell a wide range of high-end pc components, including cases cpu, coolers fans, memory, power, supply units and more corsair has built up a dominant brand with number one us market share in memory, pc cases, power supply units and pc cooling systems.

They have the number two market share in streaming: peripherals performance controllers and keyboards. They only have third and fourth place market share in mice and headsets, as these categories are far more competitive. They've achieved this market share by building a track record for quality over multiple decades, while they only ipo'd. Recently, they were founded in 1994 and have been a household name amongst hardcore gamers.

For more than a decade, they differentiate themselves by being not just a hardware company, but also a software company. They develop the proprietary iq software, which lets gamers customize. The rgb features on their corsair devices. Their streaming segment.

Elgato also has proprietary software, which supports 4k video capture, audio and mic mixer stream deck software and lighting control they're, also very smart about their advertising. Instead of spending money on inefficient tv commercials or other traditional media, they sponsor leading esports teams. This optimizes marketing efficiency, as it allows them to target hardcore esports fans, they're masters of social media. They have a youtube channel with almost half a million subscribers.

They have 2.8 million followers on instagram, where they post frequently. Now that we've gone over their business, let's dig into the financials to see how much upside there is for the stock. They have two segments, the gamer and creator peripheral segment in the gaming components and system segments. The first segment includes things like keyboards mice, headsets and chairs, as well as streaming gear, including cameras, microphones and stream decks.

The second segment includes pc components for people who build their own pcs. These include cases cpu coolers memory, etc. The gamer and creator peripheral segment was already growing strongly pre-pandemic and the pandemic accelerated the growth to a staggering 83 in 2020.. Importantly, this segment has gross margins of 35, which is higher than the other segment.

The outsized growth of this high margin segment increased the gross margin of the company overall, based on the company's guidance we estimate, gamer and creative peripherals will grow at 30 in 2021 and taper down to 10 thereafter live streaming is also a major area of focus for Corsair in october of 2020, they acquired oppo cam, an app which allows users to turn their phone into a wireless webcam for their computer. Additional acquisitions like this, could create further upside relative to our estimates. The gaming components and system segments also had a major benefit from the pandemic. It grew 45 percent year over year, but even before the pandemic is growing above 10.

We expect this segment to grow at 12. In 2021.. We conservatively assume that it will level up to just 5 growth thereafter, as their revenue grows, they'll benefit from operating leverage and should see their operating expenses decrease as a percentage of gross profit based on the current stock price of 26.83 cents per share. Corsair has a price to earnings ratio of 23 and a half times for 2020., based on their growth.

We think that they can increase earnings per share to 2.34 cents per share by 2025.. If we apply a 20 times multiple, we get a 47 price target or almost 75 percent upside. We think a 20 times. Multiple is reasonable.

Given the long-term tailwinds behind the gaming industry, there are two main risks with corsair. As the economy reopens demand for gaming may decrease. Also, if people already bought enough gaming equipment over the past year, they might not need to buy any upgrades for a while. We think this risk is limited in the second quarter of 2021.

The us economy was already pretty much fully opened. Despite this, they were able to grow revenues by 24 to 473 million dollars. Corsair ceo says the pandemic brought new people into the gaming space who will continue buying equipment for many years and so far the numbers seem to be vindicating. Its stance there's no question that, as people spend more time at home and less time out in restaurants at bars, then they get more interested in gaming.

But what we do see - and this is what i think investors were finding interesting as we talked to them - was that people that get into gaming and start you know, building up their desktop and buying gear, tend to continue to spend money over several years. In fact, most people - i know that are avid gamers - you know have been doing this for 20 years and and don't stop spending, so it's not sort of a one-time spend and then and then we're done. The other major risk is competition. The gaming space is highly competitive, with big players like logitech being very active, but we think corsair's leading competitive position is safe, as they've built up their reputation over multiple decades.

They offer the full range of products a serious gamer needs. This has turned it into a go-to destination, which makes their customer base very sticky. This makes them very different from non-diversified companies like turtle beach, which focus only on headsets turtle. Beach has failed to develop an enduring brand because their focus is too narrow.

We think that corsair is the polar opposite of this, and their brand will continue to grow for many years to come. Alright guys that wraps it up for this video. What do you think about corsair? Are there any other gaming socks that you like better? Let us know in the comments section below, if you enjoyed this content, make sure to hit the like button and subscribe. So you don't miss future uploads as always.

Thank you so much for watching and we'll see in the next one wall, street millennial signing out.