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Turtle Beach crushes second-quarter estimates as rise of Fortnite and PUBG boosts demand for headsets

The audio equipment maker swung to a profit in the second quarter as demand for headsets skyrocketed
Player using a gaming headset
The headset maker upped its guidance for the year ahead

Turtle Beach Corporation (NASDAQ:HEAR) announced better-than-expected second-quarter results as the rise of multiplayer online games spurred on demand for its audio headsets.

The audio accessory company reported earnings of US$0.40 per share on revenue of US$60.8mln compared with a net loss of US$0.57 on revenue of US$19.11mln in the previous year’s second quarter.

READ: Oppenheimer raises Turtle Beach price target on headset demand from video gaming space

The California-based company crushed Wall Street estimates of a net loss of US$0.02 EPS on revenue of $47.9mln.

Shares jumped in Monday after-hours trading and continued to climb nearly 4% to US$31.53 in Tuesday Morning trading.

For the next quarter, the company expects earnings of US$0.44 per share on revenue of US$65mln, compared with a net loss of US$0.04 per share on revenue of US$36mln in the previous year’s third quarter.

The company upped its full-year guidance to earnings of US$1.95 per share on revenue of US$205mln, above its previous guidance of US$0.95 per share on revenue of US$205mln.

The rise in popularity of multiplayer games like Fortnite and PlayerUnknown’s Battlegrounds have been a driving force behind revenue growth.

“Our growth continues to be driven by a healthy console gaming headset market and our market share gains. The successes of Fortnite and PlayerUnknown’s Battlegrounds, and their innovative battle royale format, has driven new gamers into the market at significantly higher headset attach rates than we have experienced in the past,” said CEO Juergen Stark in a press release.

An analyst weighs in

Oppenheimer analysts were encouraged by the company’s strong earnings beat, seeing sustainable long-term growth ahead.

“We believe fundamentals remain favorable for HEAR as a healthier balance sheet allows the company to invest in growth initiatives beyond 2018. A potentially expanded installed base allows for sustainable long-term growth for replace/upgrade demand,” wrote analysts Andrew Uerkwitz and Martin Yang.

The average replacement cycle for a console headset is around 24 months on average, as per the note.

The analysts reiterated an Outperform rating, raising the price target to US$35 from US$31.

Wedbush analysts had a similar viewpoint, forecasting increased profitability ahead.

“We think FY:18 revenues will track higher than guidance, allowing Turtle Beach the flexibility to (1) pay down a significant portion of its debt, with free cash remaining to invest into (2) expanding its PC gaming headset portfolio,” wrote analysts.

The popularity of Fortnite and PlayerUnknown’s Battlegrounds contributed to the earnings beat but analysts are hopeful that the upwards trend may continue as new battle royale-style games are introduced in the fall.

The month of October will bring with it the release of Call of Duty: Black Ops 4 and Battlefield 5.

Wedbush analysts reiterated an Outperform rating, raising its price target to US$42 from US$31.

The company recently signed a deal as the official esports and gaming headset partner for Manchester City eSports team. The team’s pro players will use Turtle Beach’s Elite Pro line of audio equipment and other accessories.

--Updated to include analyst commentary and updated share price

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