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Turtle Beach: As The TAM Expands The Risk Increases


  • Turtle Beach has made use of very strong tailwinds over the past 3 years to grow its way out of financial distress.
  • The purchase of ROCCAT is a good use of capital and expands the potential TAM of Turtle Beach into the PC headset market.
  • With a 40 percent share in U.S. market it will be hard to significantly increase share domestically.
  • Temporary gamers from the pandemic may not replace headsets at the historical cadence.

Men playing video games
Photo by Kerkez/iStock via Getty Images


Turtle Beach has had a great run, but the growth pulled forward from the pandemic will start to show as people begin to venture outside and other entertainment options become available. The market for

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Post potential ideas to improve investing process, obtain feedback, and discover blind spots.  Value bias but open minded to other investing strategies.  Looking for attractive risk/reward bets.  I post updates to businesses I pitch here on my Substack, as well as posts on other investing topics:         https://mattnicholsonlewis.substack.com/

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (13)

FortuneFavorstheBrave profile picture
Thanks Matt and others for your opinions. I have been long this stock for some time and made a good run, scaling in and out a bit. Still think there is more to come. Given the size and growth of their markets, your case seems too bearish to me. Gaming is big and there is a case to do a billion in sales in the not too distant future, selling about 12 million products annually at a price of 80. EBITDA margin could well be 15% which should solve for >1 bio in equity value, adding current assets and intermediate cash flows could give about 1,35 bio in equity value in 3 years time. Sharecount would probably be 22 mio so equates to USD 61 per share. Not meant to be precise but a plausible scenario.
Have a look at their updated presentation that imo offers quality products, business and team:
I think that 35 to 40 USD per share is currently about right now but would see 15-30% annual growth to that for the years ahead and possibly 50-60 per share (ongoing dilution is indeed a concern). Given their business, size and balance sheet, this does qualify as a buyout candidate.
Matt Nicholson Lewis, CFA profile picture
@FortuneFavorstheBrave Thanks for reading and the comment. The scenario you layout looks very reasonable to me. Maybe I'm being slightly too conservative, but the way I was looking at was as follows:

- Share in U.S. around 40% and CAGR of 4% through 2030 (~$900m U.S. market in 2030). Feel given the larger base, current demand spike, and high share growing fast in U.S. will be tough.
- Europe grow 9% CAGR with ROCCAT having a bigger impact on a smaller base. U.K was 7% CAGR for similar reasons
- Other (predominantly Asia) I estimated at 4% CAGR. I'm a little more skeptical on growth in Asia. TB doesn't have much or a footprint there and even though the market is growing fast, the options (a lot local to Asia), makes me think it will be hard for TB to really capture much of the market (this is probably where i'm being most conservative).

My EBITDA margins averaged around 11 or 12% throughout the forecast period but given you prediction of more growth and scale, 15% is a possibility (and achieved in 2020).

Agree on the buyout potential as well but probably see that more as a bonus (don't want to invest based on a potential takeover). Appreciate the well thought out thesis!
Admiral Risky profile picture
@Matt Nicholson Lewis, CFA

"Other (predominantly Asia) I estimated at 4% CAGR. I'm a little more skeptical on growth in Asia. TB doesn't have much or a footprint there and even though the market is growing fast, the options (a lot local to Asia), makes me think it will be hard for TB to really capture much of the market (this is probably where i'm being most conservative)."

This won't be the case at all. If you're interested, you could spend a bit more time researching this space. Companies like $HEAR don't go into Asia/China markets "alone", they partner with an omni-channel, warehouse, logistic, marketing companies like $BZUN to lead the expansion for them. For example: Nike, Microsoft, Starbucks, IKEA, Farfetch etc. ALL partner with $BZUN and they proxy run their e-commerce operations in China for them.

Not to sound too tart, but a 4% CAGR for that market is a flagrant miscalculation.
Matt Nicholson Lewis, CFA profile picture
@Admiral Risky Appreciate the insight into the Asia. Maybe this is an area I overlooked given its current small size.. I do have a couple of questions for you on the expected growth:

1. The market for console headsets has been growing in Asia and TB generated $14m in 2020. Newzoo has global console headset market at $1.7b and 75% coming from the Americas and Europe. This means around ~$425m is current Asia market (remaining 25%)? TB has $14m in revs in 2020 (assuming all Other revenue is Asia console headsets), which gives them ~3% share? If we assume 10% CAGR for market for 10 years that gets us to $1.1b market size. If share stays constant that would get us $33m in Asia in 2030? The number I have is closer to $25m so not a huge impact on the model.

2. Understand about the partnering/JV aspect in Asia, but just as TB holds share year after year in the U.S., isn’t there a risk that they can’t steal enough share from the more prominent brands in Asia? What do you think TB’s share in Asia can be?

3. From what I can find management hasn’t really spoken about Asia too much on the conference calls or in the 10K? They mentioned ROCCAT expanding there but not much on TB in the region. Is there somewhere they discuss the Asia expansion plans in more detail?

4. What’s your expectations for growth in the region and how do you see it playing out?

Bob Kleinberg profile picture
Outstanding article and analysis. Thank you.
Matt Nicholson Lewis, CFA profile picture
@Bob Kleinberg Thank you for reading and the positive feedback.
juangoicoa profile picture
$HEAR valuation is undemanding by any metric: Revs growth, margins and FCF present an outstanding vehicle to "play" the gaming growth.

The first thing you want to see in a company is a superb core product, not only in US but in China, which should be the market to be in the coming years. JD.com reviews could be desired by any brand (similar to Iphone standard reviews). Since this is THE market you want to be, it should be easy for them to take 5/10% of that market, that would represent 20% plus extra sales for the company.

The other thing that could be an opportunity is the heavy burden, it has too much opex, they need more scale.... or this also could be an opp for any company that could make a take over of the company.

I'm a little afraid that this company was mentioned to me by a friend at 25 price, but I would expect to double my investment in no more than 12 months.
Admiral Risky profile picture
Good to see more write-ups on $HEAR. With respect to growth expectations, it's important to realize that Asia and specifically China is the "new" geography they are going to be focused on. It is the largest gaming market in the world and it is in the midst of it's first ever full-scale console upgrade/release cycle (consoles were banned until 2015).

In terms of revenue generation, Asia is currently a negligible part of $HEAR's revenue stream in comparison to $CRSR where 20% of their rev is from the Asia region -- so lots of growth potential.

New consoles were released this week in China and already completely sold out within 20 minutes of pre-orders. Channel checks we've performed on Turtle Beach's official stores on both JD.com and Alibaba's Tmall indicate a continued heightened amount of purchases and inventory directed to those storefronts.

There is also the new development that came out days ago suggesting shareholders are pushing $HEAR management for a sale. Given HyperX was acquired for $425M and $HEAR's market cap is circa $430M we feel confident holding the firm at these levels.
@Admiral Risky if they would sell, do you have any Suggestion for the possible selling price?
Admiral Risky profile picture
@Oracle of germany
Some past M&A deals/offers in the space $HEAR operates:

~2018 Plantronics $PLT >$2.2B (fell through - $PLT wanted more)
~2018 Blue Microphones $117M
~2017 Astro Gaming $85M
~2016 Jaybird $50M

~2016 Skull Candy $197M
~2014 Beats $3B

Given some of the past p/s, p/e, and p/fcf multiples these other companies have gone for under far harsher market conditions (especially when compared to today's money printing environment), I'll just say that I like $HEAR's positioning should they consider a sale :-).
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