Turtle Beach Is Targeting Market Share Expansion, Says Bullish Wedbush

Turtle Beach Corp HEAR shares were lower Thursday after investors concluded that a slowdown in "Fortnite" revenue growth doesn't bode well for the maker of gaming headsets.

On Friday, Wedbush expressed confidence in Turtle Beach's growth prospects after meeting with the company's management. 

The Analyst

Wedbush's Alicia Reese maintained an Outperform rating on Turtle Beach's stock with an unchanged $42 price target.

The Thesis

After meeting with Turtle Beach, Reese said Wedbush's expectation for the headset maker to report upside to 2018 revenue and EBITDA estimates of $255 million and $45 million, respectively, remain unchanged. (See the analyst's track record here.) 

The company's headsets are an ideal holiday gift-giving idea, not only for "Fortnite" players, but for players of any of the major upcoming video game releases, including "Call of Duty," "Battlefield" and "Red Dead Redemption," the analyst said. 

Turtle Beach is expected to use its free cash flow to invest in expanding its share of the PC gaming market, where it has an "insignificant" market share, Reese said. By contract, the company accounts for a 45-percent market share of the $1-billion global console gaming headset market, she said. 

By geographic region, Turtle Beach will look to first expand its products in the North American and European market, the analyst said. Once it gains a 5-percent market share in the PC headset space, Turtle Beach will likely look to expand into Asia and China, likely in 2020, she said. 

The popularity of "Fortnite" will benefit Turtle Beach for years to come, as the popular game brought a "massive swath" of new gamers into console, PC and mobile gaming, according to Wedbush. New gamers are likely to account for a big part of Turtle Beach's business as consumers upgrade their headsets to higher-priced devices every two years on average, the sell-side firm said. 

Price Action

Turtle Beach shares were down 2.6 percent at $27.22 at the time of publication Friday. 

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A Turtle Beach sound card. Public domain photo via Wikimedia.